These obligations are protected by FHA's Mutual Mortgage Insurance Fund, which is sustained entirely by borrower premiums. Down payment requirements can be low. This is because FHA insurance allows borrowers to finance approximately 97 percent of the value of their home purchase through their mortgage, in some cases. Many closing costs can be financed. This program allows the borrower to finance many of these charges, thus reducing the up-front cost of buying a home.
Some fees are limited.
FHA rules impose limits on some of the fees that mortgage companies may charge in making a loan. For example, the loan origination fee charged by the mortgage company for the administrative cost of processing the loan may not exceed one percent of the amount of the mortgage. HUD sets limits on the amount that may be insured. When buying a house that is need of repair or modernization, homebuyers usually have to follow a complicated and costly process, first obtaining financing to purchase the property, then getting additional financing for the rehabilitation work, and finally finding a permanent mortgage after rehabilitation is completed to pay off the interim loans. The interim acquisition and improvement loans often have relatively high interest rates and short repayment terms.