FHA is the Federal Housing Administration. FHA's mission is to assist low to moderate income families in becoming home owners. The U.S. Congress created the Federal Housing Administration in 1934. At the time that the FHA was created, the U.S. was recovering from the great stock market crash of 1929 and the depression. Many people couldn't afford to buy a home under the banking requirements back then. As a result the U.S. Governement created the FHA to provide a government insurance to banks regarding loaning money to folks who needed help and didn't have a lot of money for down payment. This move helped 1000's of Americans become home owners for the first time.
Fast forward to 2008, today FHA is a department under the Department of Housing and Urban Development - HUD. This move happened in 1965 when HUD was created. FHA is still committed to providing home buying assistance to low to moderate income families and first time home buyers. Learn what you need to know to qualify for an FHA home loan.
How does FHA work?
Essentially FHA has set forth loan approval guidelines under which they will provide a government guarantee, or insurance, to a mortgage lender for making FHA loans to home buyers. These guarantees protect the mortgage lender to some degree regarding a loss due to a loan default and foreclosure. Instead of paying Private Mortgage Insurance - PMI - borrowers pay a Mortgage Insurance Premium - MIP. This premium is essentially the same thing as PMI, but the payment is made to the FHA versus a mortgage insurance company. PMI is paid to private companies who insure loans made by Fannie Mae and Freddie Mac.
What Kind Of Loan Can I Get From FHA?
FHA offers a variety of loan products through a network of FHA approved lenders around the U.S. Similar to Fannie Mae and Freddie Mac it offers 30 year mortgages, ARM loans, and a 1-2 or 3 year buydown program. These loans can all be made on 1-4 family homes. Also, this list of loans fall under the loans known as 203(b) loans. FHA also offers loans to rehabilitate a home when the home is purchased. This loan is also called the 203(k) loan. Another loan offered by FHA is the EEM or Energy Efficient Mortgage. Basically, this loan is used to install energy efficient upgrades to a home that is being bought using FHA financing. Learn more about Energy Efficient Mortgages. The last type of loan that FHA offers is what is known as a Title 1 loan. This loan program is a small, almost micro loan, that a home owner can get to make "non-luxury" repairs and rennovations to their home.
Can I Use FHA To Buy Any Home?
Loans from FHA are a great way to get financed, especially if you are a first time home buyer. The qualification guidelines for FHA are more flexible than Fannie Mae and Freddie Mac, although FHA tends to be much harder on qualifying a home. Homes must pass a certain set of guidelines too. Quite often the seller of a home will not accept an offer on a home if they know that the prospective home buyer is using FHA. Most likely there will be required repairs on the property which will likely cost the home seller some money. Not all homes will qualify so make sure that you talk to your real estate agent if you are planning on using FHA. Your agent will make that you only look at houses that will qualify for FHA.
So, if you are out shopping for a home, make sure that your real estate agent knows that you are using an FHA mortgage if you are. The real estate agent will want to know this also because they can negotiate for additional closing cost assistance and possibly get you into a situation where your lender can use the AmeriDream program to help with your down payment and covering your closing costs. Buying a home with FHA is a great way to buy a home. Many home buyers in the past have used FHA to purchase their first home, so can you.
Article by Dale Stouffer, Mortgage Broker. Dale has a been a mortgage broker since 1996. This Article is designed to be of general interest and should not be considered legal advice. The specific information discussed may not apply to you. Before acting on any matter contained herein, you should consult with your personal legal adviser.
