What Is a 30-Year Fixed FHA?

Thirty-year fixed FHA loans are mortgages with fixed interest rates that are insured by the Federal Housing Administration, or FHA. The FHA, a division of the U.S. Department of Housing and Urban Development, has been providing mortgage insurance on low-down-payment loans since 1934. Aside from fixed 30-year loans, the FHA also insures loans with variable rates and shorter terms.

Mortgage Insurance

Generally, mortgage companies don't lend money to homebuyers with down payments of less than 20 percent or to existing homeowners wishing to refinance who have less than 20 percent equity in the home. Private mortgage insurers don't insure lenders against borrower default if the borrower has less than 20 percent equity. However, the FHA insures loans for first-time homebuyers who make down payments of just 3 1/2 percent. The FHA also insures refinances of existing FHA loans for people with just 5 percent equity.

Monthly Payments

The monthly payments on a 30-year fixed FHA-backed mortgage amortize, which means the lender divides the total amount of principal and interest due on the entire 30 years of the loan into 360 equally sized monthly payments. FHA borrowers who make down payments of less than 20 percent must also pay a monthly insurance premium that actually funds the FHA insurance. The FHA changes insurance fees on an annual basis, but people generally pay an annual fee equal to between 1 and 2 percent of the purchase price. The monthly mortgage payment consist of principal, interest, mortgage insurance premium, homeowner's insurance and property taxes.

Underwriting FHA Loans

As of 2011, the FHA insures loans only for borrowers with credit scores of 620 or higher. However, lenders that partner with the FHA to write loans can establish higher credit minimums and may refuse to write loans for people with credit scores below 640. The borrower can borrow funds for the down payment from a relative and ask the seller to make a concession of up to 3 percent of the closing costs. The payments on 30-year fixed loans are lower than on 15-year loans, but interest rates are generally higher.

Other Fixed FHA Loans

Thirty-year FHA loans are usually straight purchase or refinance loans, but people buying homes in need of repair can borrow money using 30-year fixed FHA 203k loans. These loans cover the purchase price, plus additional money needed to pay for major repairs and upgrades on a dilapidated home.

Homeowners with current FHA mortgages who feel they may not have the 5 percent equity necessary for a regular 30-year refinance can take out a FHA streamlined refinance. This involves using the appraisal written for the original loan and enabling the homeowner to refinance into 30-year FHA-backed loans with low rates.

References

• U.S. Department of Housing and Urban Development: Refinances
• United States Department of Housing and Urban Development: Mortgage Insurance
• United States Department of Housing and Urban Development: The Federal Housing Administration
• Bankrate: What to Know About FHA Loans
• U.S. Department of Housing and Urban Development: Streamline Your FHA Mortgage

Resources

• Bankrate: Doomed FHA Short Refi Starts