The Federal Housing Administration (FHA) is a department under HUD (Housing and Urban Development) and is NOT a lender. The FHA program provides mortgage insurance to the lender on loans originated by lenders approved by the agency. The insurance protects the lender in case the borrower defaults on the loan.
The National Recovery Act of 1934 resulted in the creation of the FHA. The Great Depression witnessed major failures in the banking system due to the decline of the housing market and the FHA was created to prevent such a catastrophic occurrence from happening again. Refinance programs were simply not available and most home mortgages were short-term, generally 3 to 5 years, no amortization with balloon payments that came at inopportune times.
With many Americans unemployed, they simply found themselves unable to make their mortgage payments, so their homes went into foreclosure…causing the housing market to plummet. Banks collected the loan collateral (foreclosed homes), but the values were significantly less than the loan balance as a result of the declining housing market (sound familiar?). This lack of asset caused few home loans being issued and few homes being constructed or purchased and many bank failures.
The intent of the Housing Recovery Act and the formation of the FHA were to restructure the federal banking system. Its primary purpose was to regulate the rate of interest and terms of mortgages that it insured. Even up to today, the FHA has been at the forefront of stabilizing the home financing market so that more Americans are able to afford to purchase a home through lower down payments and easier terms than conventional mortgages.
In 1965, the Department of Housing and Urban Development(HUD) incorporated the FHA into its organization. The FHA is the only government agency that is completely self-funded. Currently, the FHA has over 4.8 million insured single homes and 13,000 insured multi-family homes in its portfolio.
BENEFITS OF A FHA HOME PURCHASE
Great Option for First Time Home Buyers
- Easier to Qualify For
- Low Down Payment, only 3.5% required(Finance up to 96.5% of the home value)
- Gift funds allowed for Down Payment and Closing Costs(isn’t that what family and friends are for?)
- Lower Credit Scores Permitted
- Lower interest rates…government insurance creates less risk for the lender
- Can be used on a Purchase for a Rehabilitation(“fixer-upper”) through the 203k program
- Better Support for Troubled Borrowers FHA as programs designed to help homeowners keep their homes during hard times
BENEFITS OF A FHA STREAMLINE REFINANCE MORTGAGE
- Best way for current FHA mortgage holders to refinance their current mortgage
- DOES NOT REQUIRE AN APPRAISAL! The FHA will allow you to use our original purchase price as your homes current value..even if your home is significantly less in value than the original purchase price.
- No employment or income verification requirements
- credit score verification is not required (can only have 1 30 day late in the last 12 months)
- Must be a net tangible benefit of reducing principal and interest payment by at least 5% OR converting an adjustable rate mortgage(ARM) to a fixed rate product