FHA Mortgage Insurance

What is FHA Mortgage Insurance?

In case a homeowner ends up defaulting on their mortgage loan, FHA mortgage insurance will protect the lender against the losses that result from the default. The FHA pays a claim to the lender, so the lender assumes less risk. To qualify for this insurance, a loan must fit the FHA’s requirements.

Why Use FHA Mortgage Insurance?

There are several benefits to having a loan insured by the FHA instead of a conventional loan. For one, the cash investment needed to close an FHA-insured loan is little compared with normal loans with strict underwriting rules. Also, this insurance allows for greater flexibility for the calculation of household income and payment ratios. Finally, the homeowner’s burden of insurance costs drops off either after five years or after the loan balance reaches 78% of property value — in this case, whichever comes later.