The Federal Housing Authority (FHA) was created during the Great Depression with the goal of improving housing standards and conditions, providing financing through insurance of home loans, and stabilizing the housing market. Despite the structural and technological changes the United States has gone through in the last three quarters of a century, the FHA has continued to assist the average American. While the FHA’s accomplishments are hard to question, most Americans are either unaware of its advantages or are told that a conventional loan will better suit them. What is the truth regarding FHA loans and why might this type of loan work best in our current economic climate?
Most potential borrowers are informed that the FHA is just another lender, but they are incorrect. Instead, the FHA acts as insurance for the investors who actually make the loans. Therefore, in the case of a defaulted FHA loan, the lender is guaranteed a mortgage insurance claim. During the first part of the twenty first century, FHA loans became a less favorable option for homeowners because most lenders were offering products that were almost impossible for buyers to refuse. With little concern over the consequences of no- money down loans or adjustable rate mortgages, lenders pushed these programs on individuals without analyzing the future economic consequences. The result of this is the current loan crisis that exists today.
Then, why does FHA make so much sense for a potential 2009 borrower? Other than the solidity an FHA insured loan offers, there are several other reasons to choose this type of loan. First, the FHA used to cap their loan limits. This made it impossible for those looking for slightly expensive homes to use the government sponsored program; but this has changed. The stimulus program recently announced by President Obama has significantly increased the loan limits to $625,000, making an FHA loan practical for almost all prospective borrowers.
In addition to the escalation of loan limits, FHA loans have become more desirable because not only do they allow the borrower the option of putting as little as three percent down, but they also are less rigid regarding credit history. Furthermore, the FHA has repetitively proven they are willing to do what it takes to keep a home from foreclosure. As the amount of foreclosures continues to increase in the United States, the FHA has continued to rework programs making it easier for those having trouble managing their monthly payments.
So while many brokers or lenders may attempt to criticize FHA programs because of extensive paperwork, fear of forced expensive repairs, or their inability to offer the government programs, do not let this alarm you or scare you into a loan that will not best suit your financial state of affairs. If your bank or loan officer does not offer FHA purchasing or refinancing options, shop around. It quite possibly is the type of financing that is best for you.
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