How The FHA Built A Nation Of Homeowners
If it were not for the Federal Housing Administration (FHA) insured home loan, the United States would be a very different country in which to live. The FHA has been insuring home loans since 1934. Millions of homes have been bought by people who could only do so because this vital program was available. That doesn’t mean that you must be less affluent to take advantage of the program, the majority of American home purchases could potentially be funded with an FHA insured loan.
Is A Government Backed Home Loan The One For You?
Almost anyone who wishes to purchase a primary residence can apply, there is no restriction on income and you don’t need to be a first time buyer. An FHA home loan enables you to make a down payment as low as 3.5 percent, even if you don’t qualify for private mortgage insurance.
In return for this government backing, you pay a one percent up-front mortgage insurance premium, which is added to your loan balance and monthly premiums, which are added to your payments of principal and interest. This might seem to be a penalty but in reality it enables borrowers to finance home purchases when they cannot afford the twenty percent deposit required for a conventional loan.
The types of mortgages that are available with FHA backing are 30 year fixed, 15 year fixed or 5/1 ARM adjustable rates. The program allows you to purchase a single home, condominium or a building of up to four residential units. Condominiums must be FHA approved to qualify. As of 2014, the upper limit for single-family home FHA loans was at least $271,050 and in counties where housing is most expensive up to $729,750.
There are no prepayment penalties on FHA loans but you can’t assign your home loan to a buyer when you sell. In some circumstances you are also able to use funds from an FHA loan to fund home improvement. They also have features that let buyers and sellers negotiate on the choice of who shall pay the fees. Essentially when you qualify for an FHA loan the government is guaranteeing you as a buyer.
Something For Buyers Something For Bankers
The feature that has made them so popular with the industry, as well as the public, is that loans that conform to FHA standards can be transferred from the banks that originated them to institutions and agencies like Fannie Mae and Freddie Mac, which hold onto them as long-term investments. This secondary market provides the economic advantage that lenders can pass on their conforming loans for cash and reinvest in new lending.
This circle of lending helps more buyers to obtain home loans at reasonable rates. FHA backed mortgages have done much to enable homebuyers to qualify to purchase a home more easily. They allow for low down payments and have no pre-payment penalties. FHA insured mortgages have done much to support the culture of homeownership in the United States.