The
Federal Housing Administration (FHA)
NOT
JUST FOR FIRST TIME HOMEBUYERS! :: MINIMUM 3.5% DOWN PAYMENT!
What is the Federal Housing Administration? (FHA)
Also known as “FHA”, the Federal Housing Administration
provides insurance on loans made by FHA approved lenders throughout
the United States. FHA insures mortgages on single and multi-family
homes including manufactured homes and hospitals. It is the single
largest mortgage insurer in the world since beginning in 1934.
What is FHA mortgage insurance?
FHA mortgage insurance provides lenders with protection against
losses as a result of homeowners defaulting on their mortgage
loans. The lenders take on 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 stick to strict underwriting guidelines,
FHA-insured loans require very little cash-to-investment scenarios,
in some cases as little as 2.25%. There is much more flexibility
in calculating household income and payment ratios. (Debt to income/
Front/back) The cost of the mortgage insurance is passed on to
the homeowner and is calculated in the monthly payment. (Mortgage
insurance IS tax deductible) 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. When the FHA was
created, the housing industry was flat on its back: Two million
construction workers had lost their jobs. Terms were difficult
to meet for homebuyers seeking mortgages. Mortgage loan terms
were limited to 50 percent of the property's market value, with
a repayment schedule spread over three to five years and ending
with a balloon payment. America was primarily a nation of renters.
Only four in 10 households owned homes.
During the 1940s, FHA programs helped finance military housing
and homes for returning veterans and their families after the
war. In the 1950s, 1960s and 1970s, the FHA helped to spark the
production of millions of units of privately-owned apartments
for elderly, handicapped and lower income Americans. When soaring
inflation and energy costs threatened the survival of thousands
of private apartment buildings in the 1970s, FHA's emergency
financing kept cash-strapped properties afloat. The FHA moved
in to steady falling home prices and made it possible for potential
homebuyers to get the financing they needed when recession prompted
private mortgage insurers to pull out of oil producing states
in the 1980s. By 2001, the nation's homeownership rate had soared
to an all time high of 68.1 percent as of the third quarter that
year.
http://www.hud.gov/offices/hsg/fhahistory.cfm |
