FHA

Bruno Simpson Last Updated Jul 09, 2019 (0) comment

FHA is an acronym for Federal Housing Administration. It was established in 1934 as part of the National Housing Act to increase home construction, reduce unemployment, and operate loan insurance programs. It was created during a time when foreclosure rates and loan defaults were on a sharp rise, and so was meant to be, and is, a self-sustaining program.

An FHA loan is a loan backed by the Federal Housing Administration. The FHA does not, itself, underwrite these loans. Instead, the FHA offers insurance to lenders who provide the loans, under certain conditions. One of these conditions is that FHA loans are easier to get than conventional loans. Typically, a borrower can get an FHA loan with a credit score as low as 500. With conventional loans, that minimum seems to rest somewhere around 620 to 680.

Also, depending on the credit score, borrowers can get an FHA loan with as little as 3.5% down, and the down payment can be provided, by gift or grant, to the borrower. The FHA has a website dedicated to providing a list of programs in each state which offer down-payment assistance. Since the Great Depression and FHA’s creation, the Federal Housing Administration has made it possible for millions of people to become homeowners when they might not have had the opportunity otherwise.

It should be noted, however, that FHA loans are often more expensive than conventional loans in the long run. If a borrower finances more than 80% of the value of a home, they have to pay for Private Mortgage Insurance (PMI).

The FHA offers different types of loans, but Fixed Rate Mortgages, Adjustable Rate Mortgages, and Home Equity Conversion Mortgage are the three most common. With a Fixed Rate Mortgage, when you sign the mortgage paperwork, the interest rate you agreed to won’t change. With an Adujustable Rate Mortgage, the mortgage rate can change at different agreed upon dates. Home Equity Conversion Mortgage is more commonly known as a reverse mortgage, and are for seniors 62 of age or older who own their home entirely.

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