What Do I Need to Know About FHA Mortgages?

My husband and I are in the process of buying our first house. We have been qualified for an FHA mortgage with seemingly great terms: 4.75% fixed for 30 years and little money required as a down payment. The down payment part is great for us as we are still in the process of selling our current place - a double-wide mobile home.

I know that we may have some trouble with the home inspection but the mortgage agent tells me that many of the requirements in that area have been made easier to allow more new buyers to qualify with less trouble.

What really has me worried is something a friend of mine just told me today. He seems to think that in order to keep the mortgage under FHA terms we must stay at a certain income level - under $75,000 or so for the entire household. We’re close to that now and will conceivably pass that marker in the next few years.

He also says we must keep less than $5000 in the bank at all times after we settle. That seems really low and rather unrealistic.

I’ve done a lot of searching but my google-fu is failing me here.

Anyone have experience with FHA loans - good or bad? Anything I should watch out for before signing the papers?

My parents mortgage was FHA. They never limited their income or worried about too much money in a savings account. The mortgage seemed like everyone elses.

Are you a veteran? VA mortgages are another low interest option.

http://money.cnn.com/2009/04/03/real_estate/FHA_loans/index.htm

I have an FHA mortgage. I’ve never heard of the income limitations. Also we have more than $5,000 in the bank, and again that’s never come up as an issue.

I’m also in the process of buying my first home (though not as far along as you appear to be). I’m also probably going to go the FHA route, so I can say with confidence that those requirements are not true. Maybe your friend was thinking about a local or state first-time home buyer assistance program with income limits? Even so, I can’t see why a requirement would be to keep LESS than 5k in the bank ever!

By the way, have you looked at the the USDA Rural Development Mortgage program? It is applicable in a lot of areas that are not exactly rural.

I got an FHA mortgage on my house when I bought it in 1993, and have never refinanced, for reasons that will soon become apparent.

It was an adjustable rate mortgage, at an initial rate of 5.5%. If you want to go with an adjustable rate, FHA’s the way to go because:
[ol]
[li]The rate can be adjusted only once per year[/li][li]The rate can change by at most 1 percentage point per year (e.g. 5.5 to 6.5)[/li][li]The rate can not go more than 5 percentage points over/under the original rate (e.g. max of 10.5%, min of 0.5%)[/li][/ol]
My current rate is, IIRC, somewhere around 4 percent.

I also have an FHA mortgage - just your standard 30-year fixed rate loan. No such restrictions on mine either. I closed this June, so this is about as current as it gets.