A FHA loan is a government backed home loan that allows more Americans to own homes with a smaller down payment. The main reason for this opportunity is due to the governments will to insure the mortgage against default with their own mortgage insurance. Generally referred to as the “first time homeowners program”, FHA loans allow many advantages that do not exist in any other type of financing. Some of these great advantages are lower down payment (3.5%) when purchasing your home. The government also allows for down payment funds to be a Gift, please consult your mortgage advisor for more information. FHA and HUD have set county loan limits that may determine if you qualify further for the program.
FHA Loans FAQs
- What is the Federal Housing Administration? – The Federal Housing Administration, generally known as “FHA”, provides mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories. FHA insures mortgages on single family and multifamily homes including manufactured homes and hospitals. It is the largest insurer of mortgages in the world, insuring over 34 million properties since its inception in 1934.
- What is FHA Mortgage Insurance? – FHA mortgage insurance provides lenders with protection against losses as the result of homeowners defaulting on their mortgage loans. The lenders bear less risk because FHA will pay a claim to the lender in the event of a homeowner’s default. Loans must meet certain requirements established by FHA to qualify for insurance.
- Why does FHA Mortgage Insurance exist? – Unlike conventional loans that adhere to strict underwriting guidelines, FHA-insured loans require very little cash investment to close a loan. There is more flexibility in calculating household income and payment ratios. The cost of the mortgage insurance is passed along to the homeowner and typically is included in the monthly payment. In most cases, the insurance cost to the homeowner will drop off after five years or when the remaining balance on the loan is 78 percent of the value of the property -whichever is longer.
- How is FHA funded? – FHA is the only government agency that operates entirely from its self-generated income and costs the taxpayers nothing. The proceeds from the mortgage insurance paid by the homeowners are captured in an account that is used to operate the program entirely. FHA provides a huge economic stimulation to the country in the form of home and community development, which trickles down to local communities in the form of jobs, building suppliers, tax bases, schools, and other forms of revenue.
- The History of FHA – Congress created the Federal Housing Administration (FHA) in 1934. The FHA became a part of the Department of Housing and Urban Development’s (HUD) Office of Housing in 1965.