FHA-insured loans are mortgages backed with FHA mortgage insurance. The FHA insures a variety of loans under its various programs, including the 203(b) and 203(k) loan programs for single-family homes, duplexes, triplexes, and quadplexes. The FHA also insures loans for multifamily and healthcare properties under the HUD 221(d)(4), HUD 223(f), HUD 232, and HUD 223(a)(7) programs.

FHA-insured loans are loans that are backed by FHA mortgage insurance (see also HUD-Held) mortgages). The FHA insures both single family home mortgages, through its 203(b) and 203(k) loan programs, and multifamily mortgages, through programs including the HUD 223(f), HUD 221(d)(4), and HUD 232 loan programs.

FHA-insured loans offer several benefits to borrowers. These include lower down payments, lower closing costs, and more flexible credit requirements. Additionally, FHA-insured loans are backed by the Federal Housing Administration, which provides lenders with additional protection against loan defaults. This encourages lenders to lend to borrowers that they might ordinarily see as too risky. For more information, please see the following sources:

• 203(b) Loan Program
• HUD 221(d)(4) Loan Program
• HUD 223(f) Loan Program
• HUD 232 Loan Program

FHA-insured loans require mortgage insurance premiums (MIPs), an FHA application fee of 0.30% of the entire loan amount, an FHA inspection fee of 0.50% of the loan amount, and developers are required to pay for a variety of third-party reports, including environmental assessments.

For more information, please see the following sources:

• FHA-Insured Loans Definition
• Insurance Requirements
• HUD 241(a) Loans

Eligible properties for FHA-insured loans include multifamily and healthcare properties with existing HUD mortgages of all types, such as market-rate, mixed-income, subsidized, and affordable properties. Additionally, HUD 223(f) loans permit nearly all property types, such as row, walkup, detached, semi-detached, or elevator-type rental or cooperative housing, student housing, and market-rate, affordable, or rental assisted/subsidized properties. However, assisted living, skilled nursing, or memory care properties are not eligible for HUD 223(f) financing. All construction and major rehabilitation must be finished three or more years before beginning the HUD loan application process.

The advantages of an FHA-insured loan include:

• Low down payment requirements
• Flexible credit requirements
• Competitive interest rates
• No prepayment penalties

The disadvantages of an FHA-insured loan include:

• HUD is a government agency, which translates into more time to process loans, usually 100 to 120 days, but sometimes longer.
• A borrower's rate won't be locked until HUD gives a commitment. This may take 3-4 months, which can lead to some uncertainty.
• There is a need to pay both initial and annual MIP (Mortgage Insurance Premiums).
• Additional HUD requirements include:
  • HUD property inspections
  • Annual audits (these often cost around $2,500)
  • Replacement reserve escrows (in addition to regular tax and insurance escrows)
• Restrictions include:
  • Cash out restrictions (including certain restrictions on cash out refinances)
  • Owner distribution restrictions (these are limited to 2x a year, once after the annual audit, and one time after a certification is signed by the borrower)
• HUD and FHA fees which increase the loan’s overall cost:
  • FHA inspection fees
  • Third-party reports
  • Title and recording fees
  • Financing fees
  • Legal fees
• Requires a variety of third-party reports, including environmental assessments, architectural and engineering reports, and full HUD/FHA appraisals
• Requires an FHA application fee of 0.30% of the loan amount and a 0.50% FHA inspection fee
• Requires a one-time mortgage insurance premium (MIP) at closing, and payment of monthly MIPs throughout the duration of the loan