Question:

What is Federal Housing Administration (FHA) mortgage insurance?

Answer:

The Federal Housing Administration (FHA) mortgage insurance acts as a shield to lenders agreeing to pay them in case a borrower defaults on payment. FHA mortgage insurance is only applied to loans that qualify to FHA requirements. Unlike most conventional loans following very strict underwriting process, FHA-insured loans sometimes require as little as 3% down payment.

The FHA mortgage insurance is usually spread in two - a small upfront premium often financed into the loan, and the rest is included in the monthly premium. FHA insurance will drop out either when loan balance reaches 78 percent of property value, or in 5 years, whichever comes first. If the borrower decides to sell or refinance within the first five years, he is entitled of a partial refund of the insurance.

FHA mortgage insurance is offered to borrowers by FHA-approved lenders. FHA loans are insured with the same rate, regardless of borrowers' credit rating. This makes FHA loans particularly useful to people with credit below 575.

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