The Federal Housing Administration has been helping Americans get loans for over 70 years. Here is a general description of the administration, better known as FHA.
Federal Housing Administration
Ironically, the Federal Housing Administration is more of an insurer than anything else. The FHA does not provide mortgages for you and me. Instead, it insures the lenders and mortgages they provide. This makes lenders more willing to lend to people who would otherwise be disapproved.
The insurance aspect of the FHA is a fairly common tool used by the federal government to promote specific behaviors. Student loans are a classic example. As a general rule, an 18-year-old can not claim a sandwich loan, but student loans are numerous and easy to obtain. Indeed, the federal government wants to promote education by guaranteeing loans. If you do not return the money to the lender, the government is late. The FHA offers similar insurance to promote homeownership in the United States. In fact, the FHA is the largest mortgage insurer in the world for more than 30 million mortgages since its inception in the 1930s.
FHA loans are a very attractive mortgage option
Unlike a private mortgage loan, FHA loans are designed to reduce important breaks so that you can buy a home. The rest is in the form of a very small deposit. The typical down payment is only three percent, a big jump from the 20 percent that traditional mortgage lenders want to see.
To the surprise of many, the FHA is not funded by our taxes
Instead, it is funded by premiums. If you opt for an FHA loan, you will have to pay the insurance premiums billed by the FHA when you provide the loan. This usually occurs during the first five years of the loan or until the debt ratio of the home is about seventy-eight percent. The numbers are changing, so be sure to get an accurate description if you are considering an FHA loan.
In many ways, the FHA has revolutionized the mortgage industry. When it was created in 1934, homeownership was rather rare. To buy a house, you usually need to provide a deposit equal to half the value of the house. Mortgages were also quite short, some only three years old. At the end of this period, I had to calculate the total amount due. Talk about a difficult real estate market!
In the end, the FHA serves as a stabilizing force on the real estate market. Private lenders can change the mortgage requirements for better or for worse, which can have a significant impact on people’s ability to buy a home. The FHA softens these fluctuations by always providing a mortgage loan.