Think of PHFA (Pennsylvania Housing Finance Agency) as the bank, and FHA as the mortgage loan program, which it is.
Prospective home buyers make application to PHFA through approved lenders (who offer FHA, Veteran, USDA and conventional loans) and the Pennsylvania Housing Finance Agency provides the mortgage money to the home buyer.The FHA home loan is just one way to finance a home.
So what is an FHA Loan?
An FHA loan is a mortgage loan that's insured by the Federal government. It works like this, the bank lends money to the home buyer, but . . . if the home buyer defaults on the loan, the Federal government reimburses the lender for a percentage of the loss/default. The Federal Housing Administration takes possession of the home. These homes are commonly called HUD houses, or HUD foreclosures.The FHA program was created in response to the rash of foreclosures and defaults that happened in 1930s; to provide mortgage lenders with adequate insurance; and to help stimulate the housing market by making loans accessible and affordable. Nowadays, FHA loans are very popular, especially with first-time home buyers.
What Are the Advantages of FHA Loans?
The FHA loan only requires a minimum down payment of 3.5% and the seller can pay as much as 6% of the sales price toward the buyer's closing costs. The FHA home loan does not require "perfect" credit and home buyers can have an insufficient credit history and still obtain an FHA mortgage. The Federal Housing Administration is more forgiving when it comes to bankruptcy and foreclosure. Prospective home buyers may still qualify for a home loan.Additional benefits:
- No first time home buyer requirement
- FHA home loans can be “assumed”
- Lower credit score requirement
What Are the Disadvantages of an FHA Mortgage?
The FHA has loan limits and the maximum loan limit varies by Pennsylvania county (see PA loan limits). The FHA insurance that protects the lenders is paid by the home buyer. The insurance percentage can either be paid in cash at closing or financed into the mortgage. The home buyer also pays a small amount each month with their monthly mortgage payment. The amount paid monthly is call mip or monthly mortgage insurance. The initial amount is called the FHA funding fee or upfront mortgage insurance premium.The FHA loan can be used with either the Keystone Home loan or the Keystone Government loan program.
