As FHA loans are becoming more and more popular among home buyers, it's important to learn more about this kind of loan and also how these loans benefit home buyers. The Federal Housing Association (commonly referred to as FHA) was created in 1934 as result of Depression - a time when home loans and home ownership in general had suffered one of the largest decreases the country had ever seen.
This government agency was intended to stabilize the mortgage market (which would, in turn, help to stabilize the housing market), and it was also intended to provide more affordable financing for a larger range of people. When home buyers don't have twenty percent of the home's value to put down at closing, they're required to get mortgage insurance. Buyers with little money down have to get this insurance because if they had to foreclose on the home, they wouldn't lose very much (since they don't have a significant portion of the home already paid for).
FHA loans were created as a kind of government subsidized mortgage insurance. In a nutshell, that's really what an FHA loan is. The borrower pays a monthly premium as well as one upfront premium that is a percentage of the overall loan amount. In short, the idea behind creating FHA loans was to generate more homeowners by providing more affordable insurance for these buyers who otherwise couldn't qualify for it (or put down twenty percent at closing).
FHA was very successful in improving the mortgage and housing markets, and it continues to be a popular loan option for home buyers. Since it was created in 1934, FHA and its counterparts have insured more than 34 million home loans. And, the good news for tax payers is that the Federal Housing Administration operates solely from the income it produces, meaning that it is fully self-funded. In fact, it's the only government agency that can boast such independence.
So, who benefits from FHA loans, and when is it a good idea to consider these kinds of loans? These loans are ideal for home buyers who need a low down payment loan. Most conventional loans require that the borrower put down at least five percent at closing. FHA loans, though, only require a three percent down payment. And, the down payment is not the only benefit of FHA. The monthly payment for FHA loans is also lower compared to traditional loans because the mortgage insurance premium is less. Borrowers using FHA loans do have to meet certain guidelines in order to get these loans, but they're not so strict. We've worked with a lot of buyers who have gotten FHA loans, so a lot of buyers do meet these guidelines.
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