Before we deal with the different benefits one can get from FHA mortgage financing, we need to have a hearty discussion about the difference between a traditional and an FHA mortgage first. So, what is really the difference between these two types of mortgages?
Well, unlike any traditional mortgages, an FHA mortgage is generally insured by the Federal Housing Administration. This simply means that if the borrower can not pay the mortgage, the FHA will act as the insurer, which means that FHA will pay the lender the unpaid amount.
A traditional mortgage is simply a loan which is used by the borrower to facilitate the purchase of a real estate. Other than laws and rules that govern the transaction, there is actually no government that is involved in such a deal.
Now, FHA mortgages, as said earlier, are loans that are insured by the Federal Housing Administration and insure single-family home mortgages. It collects 1.5 percent of the mortgage amount from the home buyer at closing with additional monthly insurance premiums right after the transaction. There are many existing private mortgage insurance out there and this is required to almost all traditional mortgages with a down payment of not less than twenty percent but that type of insurance is generally inexpensive which is (0.5 percent at closing, for instance) than insurance under the FHA.
There are many credible reasons why many people are switching to FHA mortgage loans like the lowest down payment around. Even when FHA has more expensive premiums, the low down payments have covered such expensive premiums and this can never be obtained from any traditional mortgage loans. As a matter of fact, Most of the traditional loans may require a borrower to give a down payment which is usually ten percent of the total assessed value of the home (say, a single-family home) but with an FHA mortgage, the down payment can be as modest as three percent.
What are the advantages of an FHA mortgage closing costs? Definitely, the closing cost is another advantage of getting an FHA mortgage loan than a traditional .mortgage. Closing costs like attorney’s fees, document fees, title insurance, and the 1.5% FHA fee can be totaled and rolled in one mortgage payment. In a traditional mortgage, that is not usually the case. In a traditional mortgage, the closing costs needs to be paid or collected by the lender at the time when the closing is done. And of course, the closing cost is paid separately from the mortgage itself.
So, there you have learned the differences between traditional and FHA mortgage financing. Which ever you prefer, it is best to keep in our mind that during these days of crisis, we need to choose the right one – the one that can provide us with the benefits and convenience we actually need.