WHAT IS AN FHA LOAN?

       FHA loans are federal assistance mortgage loans that are insured by the Federal Housing Administration and issued by federally qualified lenders.

Historically, FHA loans have allowed Americans with limited income to borrow money in order to buy a home. During the Great Depression of the 1930s, foreclosures were a serious problem in this country and so were defaults.

 The government started the FHA program to give lending institutions the right amount of insurance. Some of the administration's programs were subsidized by government; however the overall goal was to make the agency self-supporting, based on insurance premiums paid by the borrowers themselves.

Over time, private mortgage insurance (PMI) companies got into the game. If you cannot afford a conventional loan, down payment or simply cannot qualify for PMI, and FHA loan might be for you. In August of 2007, FHA added a new refinancing program for people hurt by the 2007 subprime mortgage crisis. This program is called FHA-Secure and provides needed relief to a shaken economy.

       WHO IS THE FEDERAL HOUSING ADMINISTRATION?

The Federal Housing Administration (FHA) was created by the National Housing Act of 1934. The government established the agency to increase home building, lower unemployment, and operate various loan insurance programs. The FHA doesn't make loans or build houses. If you apply for a loan with the FHA, you are responsible for making the necessary arrangements with a bank or some other lending institution.

This financial organization then would ask if you want FHA insurance on the loan. They may also insist that the borrower apply for such insurance. Through the Federal Housing Administration, the federal government investigates your application. If they decide that you are an acceptable risk, they will insure the bank or lending institution against loss of principal in case you fail to meet the terms and conditions of the mortgage. As the borrower, you will pay an insurance premium of one half of 1 percent on balances that decline. This is for the lender's protection and has two benefits:

1.      Protection so that the lender can offer a lower interest rate on the mortgage. This is provided by the appraisal of the real estate that is utilized for collateral for the loan. This is carefully performed by the Real Estate Appraiser/ FHA inspector.

2.      Pre-approval benefits for the borrower.

Until the late 1960s, the Federal Housing Administration existed mostly to insure loans made by private lenders. However, in recent years this role has grown to interest rate subsidy and rent supplement programs. The FHA is now the administrator of such programs. These important subsidy programs were established by the Housing and Urban Development Act of 1968.

The Housing and Community Development Act was passed in 1974 to further protect the American homebuyers and financial institutions that loan money to them. Its provisions made significant changes and increased federal involvement in a wide variety of housing and community development programs. The new law made more than a few changes in FHA activities, but it did not, as some had hoped, completely reword and consolidate the National Housing Act. Instead, it included guidelines relating to the lending and investment powers of federal savings and loan associations.

 Once you decide that this is the type of loan for you, you'll need to go through a pre-approval process. This process is a lot like a conventional loan. It's simple, straightforward, and puts you on track to buy your home quickly.  For more FHA and Lending Resources Links, please visit the Related Business Services pages of this site.