FHA Home Loans
FHA Home Loans
FHA Home Loans are mortgages insured by the Federal Housing Administration that feature lower underwriting standards and rates than conventional loans, along with lower minimum down payments of 3.5%. Additionally, FHA borrowers are required to pay for mortgage insurance (MIP) to protect the lender in the event of a default.
FHA Loans Are Flexible And Accessible
Home buyers today don’t often buy homes with 20% down.
Low- and no-downpayment mortgages remain popular with first-time buyers and repeat buyers alike; and one of the most popular low-downpayment mortgage program is the FHA loan via the Federal Housing Administration.
Nearly 1 in 5 U.S. buyers uses an FHA loan to finance a home purchase.
The program’s popularity, in part, is because buyers can make downpayments of just 3.5 percent via the FHA. But, there are other reasons why FHA loans are in demand, too.
In addition to loose underwriting standards, FHA mortgage rates are lower than comparable conventional rates; and FHA loans can be assumed by a home’s subsequent buyer.
This is especially valuable in a rising mortgage rate environment.
About The FHA Mortgage
The Federal Housing Administration (FHA) was established in 1934, which, in U.S. history, was a period of “heavy renting”. The country was emerging from The Great Depression.
Just 4 in 10 households owned their homes.
At the time, the mortgage terms offered by lenders were onerous. To get a loan meant to make a 50% downpayment; to agree to a loan term of 5 years or fewer; and, to make a large “balloon” payment to the bank after the mortgage’s first few years.
Few U.S. consumers could meet the terms of a 1930s mortgage.
Meanwhile, the government wished to increase the rates of homeownership nationwide. With more homeowners, the government reasoned, neighborhoods would stabilize and the U.S. economy would get back on track.
From this, the FHA and its flagship mortgage program was born.
The main feature of the FHA-backed mortgage was its Mortgage Insurance Premium (MIP) program, a self-sufficient insurance fund through which the FHA could insure the nation’s lenders against “bad loans”.
In order for a bank to get the FHA’s insurance on its loans, it was required to verify that its loans met the FHA’s minimum qualification standards.
These rules came to be known as the FHA mortgage guidelines.
In time, the FHA MIP system gave banks confidence to make better loans with better terms for hopeful U.S. home buyers. Soon, the downpayment requirements for a home loan dropped; 5-year loan terms were replaced with longer terms of 15 and 30 years; and mortgage rates dropped.
The FHA is currently the largest insurer of mortgages in the world.
There Are Many FHA Loan Products
Via the FHA, you can get a mortgage of almost any type.
The agency is best-known for its traditional 30-year fixed-rate mortgage, but the FHA also offers a 15-year fixed rate loan as well as a series of adjustable-rate mortgages (ARMs).
In addition, the FHA insures purchase-and-improvement loans for when you want to buy a home that needs repairs; 203k construction loans for when you want to buy a home that’s newly built; and energy-efficiency loans for when you want to finance the costs of energy-efficiency improvements into your loan.
The FHA also provides a full line of FHA refinance products.