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FHA Mortgages – Federal Housing Administration

The Federal Housing Administration has been helping Americans get loans for more than 70 years. Here is an overview of the Administration, better known as FHA.

Federal Housing Administration

The Federal Housing Administration is, ironically, more insurer than anything else. The FHA does not provide home loans to you or me. Instead, you insure the home and mortgage loans they provide to us. This makes lenders more willing to make loans to people who would otherwise be frowned upon.

The insurance aspect of the FHA is a fairly common tool used by the federal government to promote specific behavior. Student loans are a classic example. Typically, an 18-year-old cannot qualify for a sandwich loan, but student loans are plentiful and easy to come by. This is because the federal government wants to promote education and does so by guaranteeing loans. If you don’t pay the lender, the government is in trouble. The FHA offers similar insurance in order to promote home ownership in the United States. In fact, the FHA is the largest mortgage insurer in the world, doing so for more than 30 million mortgages since it was created in the 1930s.

FHA loans are a very attractive mortgage option. Unlike a private mortgage, FHA loans are designed to save you a great opportunity to buy a home. The breakout comes in the form of a very small down payment. The typical down payment is just three percent, a big difference compared to the 20 percent that most traditional mortgage lenders like to see.

To the surprise of many, the FHA is not funded by our tax dollars. Instead, it is financed with premium payments. If you opt for an FHA loan, you will have to pay the insurance premiums charged by the FHA when you make the loan. Typically, this occurs during the first five years of the loan or until the home debt ratio is approximately 78 percent. Figures change, 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 formed in 1934, homeownership was a pretty rare thing. To buy a home, you typically had to provide a down payment equal to half the value of the home. The mortgages were also quite short, some for only three years. At the end of that time period, he had to calculate the total owed. Talk about a tough real estate market!

Ultimately, the FHA acts as a stabilizing force in the real estate market. Private lenders can change mortgage requirements for better or for worse, which can dramatically affect people’s ability to buy homes. The FHA smooths out these fluctuations by always providing a home loan facility.

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