What is an FHA loan????

An FHA loan is a loan insured against default by the FHA. In other words, the FHA guarantees that a lender won’t have to write off a loan if the borrower defaults – the FHA will pay. Because of this guarantee, lenders are willing to make large mortgage loans.Almost anybody can qualify for a loan. There are no income limits – like you may find with first time home buyer programs. However, there are limits on how much you can borrow. In general, you’re limited to modest loan amounts relative to home prices in your area.

These loans are not perfect, but they are a great help to some borrowers. They allow people to buy a home with a down payment as small as 3.5%. Other loan programs generally require a much larger down payment.

FHA offers a few other bells and whistles as well:

• Easier to use gifts for down payment and closing costs
• No prepayment penalty (a big plus for subprime borrowers)
• An FHA loan may be assumable
• Possible leniency during financial hard times
• Funding for home improvement (through FHA 203k programs)

The FHA promises to pay lenders if a borrower defaults on an FHA loan. To fund this obligation, the FHA charges borrowers a fee. Home buyers who use FHA loans pay an upfront mortgage insurance premium (MIP) of 1%. They also pay a modest ongoing fee with each monthly payment. If a borrower defaults on an FHA loan, the FHA uses collected insurance premiums to pay off the mortgage.

You can visit http://www.fha.com/lending_limits_state?state=MICHIGAN to see the FHA loan limits for the State of Michigan.