FHA Mortgage Loans
The FHA’s mission driven organization encourages home ownership and provides affordable housing opportunities with low down payment and flexible credit requirements.
Since 1934, the FHA has insured millions of home mortgages with a market share of 30% in 2010 vs 3% in 2007. In 2009, FHA programs insured nearly 2 million loans, which included 750,000 first-time home buyers.
The Federal Housing Administration (FHA) was created out of the National Housing Act of 1934, and was established to increase home construction, reduce unemployment and insure government loan programs.
FHA loans have historically allowed lower income Americans to borrow money for the purchase of a home that they would not otherwise be able to afford. The program originated during the Great Depression of the 1930s, when the rates of foreclosures and defaults rose sharply, and the program was intended to provide lenders with sufficient insurance.
Some FHA programs were subsidized by the government, but the goal was to make it self-supporting, based on insurance premiums paid by borrowers.
While most people believe that the FHA lends money directly to borrowers, it actually just insures a certain type of loan that is financed by traditional banks and mortgage lenders.
Four of the most visible single family housing programs that FHA offers are, Section 203(b), Section 234(c), Section 203(k) and Home Equity Conversion Mortgages (HECM) – Reverse Mortgages.
FHA Loan Type Highlights:
- largest of FHA’s single family programs
- 1-4 unit properties are eligible
- flexible credit requirements
- 3.5% down payment allowed
- down payment may be a gift from specific sources
- provides mortgage insurance for individual condominium units
- credit, down payment and limits of 203(b) apply
- in 2010, condominium complexes must be approved through HRAP/DELRAP to be eligible for FHA insurance
- primary program for property rehabilitation
- encourages community and neighborhood revitalization
- only 1 mortgage loan is used for both the acquisition and the renovation
- 1-4 unit properties including condominiums are eligible; check with your lender for manufactured housing eligibility
- required improvements include cost effective energy conservation standards and smoke detectors
- consultancy may be required
- FHA was the first to promote reverse mortgages nationally
- allows access to equity in property with flexible terms
- lump sum, monthly payments, line of credit or a combination available
- limited to homeowners 62 years of age and older
FHA programs go beyond the scope of the previously listed programs. They offer a Streamline Refinance as well as a Streamline 203(k) for limited repairs. Also, recent legislation has helped FHA offer special programs with incentives to lenders for modifying and refinancing existing mortgages like with the “Making Home Affordable Program.”
When looking for a loan program to fit your specific needs, take a close look at FHA as their programs have become more attractive to both lenders and consumers.
With favorable loan terms, higher loan limits, 30 year fixed repayment terms and flexible down payment options, FHA will continue to encourage home ownership, provide liquidity and stability to the mortgage market.
Frequently Asked FHA Questions:
- As of 2010, the majority of lenders are leaning toward a mid credit score of 640.
- By providing your mortgage professional the required documentation, a detailed analysis will be provided that includes your maximum loan amount.