Since 1934, the Federal Housing Administration has helped people in the United States get loans. Here's a quick look at the Administration, which is also known as the FHA.
Housing and Urban Development
In a strange way, the Federal Housing Administration is more of an insurance company than anything else. The FHA does not give loans to people like you and me to buy homes. Instead, it makes sure that our mortgages and home loans are covered. This makes lenders more likely to give loans to people who would be looked down upon otherwise.
The insurance part of the FHA is a fairly common way for the government to encourage people to do something. Student loans are a classic example. Most 18-year-olds wouldn't be able to get a loan to buy a sandwich, but student loans are easy to get and there are a lot of them. This is because the government wants to encourage people to go to school, and it does this by guaranteeing the loans. If you don't pay back the lender, the government has to pay. The FHA offers similar insurance to encourage people in the United States to buy their own homes. In fact, the FHA is the largest mortgage insurance company in the world. Since it was founded in the 1930s, it has insured more than 30 million mortgages.
FHA loans are a great way to get a mortgage. FHA loans are meant to make it easier for you to buy a home than a private mortgage. A very small down payment is what gives you the break. Most people only put down 3%, which is a huge break compared to the 20% that most traditional mortgage lenders want to see.
Many people are surprised to learn that the FHA is not paid for with our tax money. Instead, it is paid for by the premiums that people pay. If you get a loan from the Federal Housing Administration (FHA), you will have to pay the insurance premiums that the FHA charges for the loan. This is usually the case for the first five years of the loan, or until the amount of debt on the home is about 78%. If you are thinking about getting an FHA loan, make sure you get an accurate picture.
The FHA has changed the mortgage business in many ways. When it was made in 1934, not many people owned their own homes. To buy a home, you usually had to put down half of the home's value as a down payment. Some of the mortgages were for as little as three years. At the end of that time, you had to figure out how much was still owed. What a hard time to buy or sell a home!
In the long run, the FHA helps keep the real estate market stable. Private lenders can change the terms of a mortgage, which can make it much harder or easier for people to buy a home. The FHA evens out these changes by always having a source for mortgage loans.
