The Federal Housing Administration (FHA) is a US government agency created in 1934, part of the National Housing Act. The purpose is to improve the standards and conditions of housing and provide a loan system to help stabilize the mortgage market. During the Great Depression, because of a lack of regulation, the U.S. banking system in suffered a complete failure. Lenders were only offering short-term loans with terms from 3-5 years. Borrowers would only pay interest and would have a balloon payment at the end of the term. Lenders only offered loans up to 50-60% LTV (loan to value). That means you would have to put at least 40% – 50% down in order to buy a home. Lenders at that time were forced to call mortgages due, due the severity of the economy at that time, and refinancing was not available. Many borrowers were out of work and couldn’t afford to make their payments. Too many homes were foreclosed which in turn caused the housing market to crash. Few loans were being issued at that time and it was very difficult to buy. That is when the National Housing Act of 1934 created FHA. The sole purpose was to regulate the rate of interest and the mortgage term that it insured. The new lending practices increased the number of people who would actually be able to afford a down payment and gave more lenience on the debt to income ratio, which helps people buy more home for their dollar, and more people would now qualify. Since the birth of FHA loans, lower income American families had the opportunity to borrow money to buy their home, an American dream, which otherwise they would not be able to afford.
FHA loans require upfront mortgage insurance which today is 1.75%. The upfront mortgage insurance premium can be paid up front, creating a tax deduction, or can be financed in the loan. For example if you buy a home for $400,000 and put 3.5% down = $14,000 your base loan amount would be equal to 386,000. You could either pay the 1.75% upfront mortgage insurance when you get the loan = $6,755.00 or it could be added to the base loan giving you a total loan amount of $392,755.00. FHA loans have a monthly mortgage insurance premium which effective this year, 2013, the monthly mortgage insurance premium does not fall off and must be paid for the life of the loan.
An FHA loan is a great program for people who either want to put minimum down payment ie: 3.5% and purchase a home or for those with less than perfect credit. FHA will go down to a 580 fico score. FHA is a vehicle to help create home ownership. If you believe that an FHA loan may be the right fit for you OR would like to know what other program you qualify for OR are just looking for more information, please give me a call 818-565-6212 OR Fill out the attached form.