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Understanding FHA Loans

Federal Housing Administration Loans

The Federal Housing Administration, a United States government agency within the U.S. Department of Housing and Urban Development, was created in 1934 to provide mortgage insurance on loans provided by select lenders meeting requirements established by FHA. This insurance provides protection to the lender in the case of the homeowner defaulting on the loan; in turn, lenders have a safety net when providing loans to qualifying lower-income American families, allowing them to be less stringent with their qualifications for granting said loans. 

The net result of this program? Thanks to FHA-backed mortgage loans, more families who ordinarily wouldn’t be able to afford home ownership are able to do so. 

According to www.fha.com the Federal Housing Administration is the largest insurer of residential mortgages in the world, insuring tens of millions of properties since 1934 when it was created. Applicants for a FHA-backed mortgage loan must meet multiple requirements, including mortgage insurance to protect lenders; lending limits vary based on housing types and location; a property appraisal and credit report; closing costs determined by a local FHA office; qualification according to set debt to income ratios (to ensure an applicant can afford the home they intend to purchase); and a solid past credit performance. 

The advantages of an FHA-backed mortgage are many; there is a relatively small initial cash investment when compared to conventional loans, and more leeway given when it comes to figuring income levels and payments. 
Down payment on a prospective home can be as low as 3.5% of the purchase price, and the loan itself can contain the majority of the closing costs and fees. There are also specific loans governing the purchase and renovation of properties in a state of disrepair, which allow you to include the costs of renovation in your loan. Financing is also available for mobile homes, pre-fabricated housing, energy-efficiency upgrades, and seniors wishing to purchase a reverse mortgage. 

In light of the nation’s recent recession, FHA-backed mortgage loans have become more important than ever to families suffering under the yolk of financial hardship endured by many recently. In Bankrate.com’s article, 7 crucial facts about FHA loans, critical facts are highlighted that can help put house keys in their hands of families who never thought they would be able to own a home. 

According to Bankrate, unlike conventional loans, minimum credit scores are not required by the FHA; instead each applicant’s individual credit score is examined within context to determine eligibility, meaning a perfect rating isn’t necessarily needed. Also, certain percentages of the closing costs may be encompassed by a seller, builder, or lender. 

In addition, Bankrate reports one overlooked fact; despite common belief, FHA-approved lenders may charge different interest rates and costs from one another, so those shopping for a mortgage are encouraged to visit several lenders to ensure that they get the best possible deal.

However, with the nation’s current economic upheaval due to the recession showing little signs of abating any time soon, even something as steadfast as FHA-backed mortgage loans are subject to change according to the realities of everyday life. In Silicon Valley Community Newspapers’ article New FHA policies could affect first-time home buyers, it is reported that the FHA is raising its mortgage insurance premiums and changing cancellation policies in 2013 after issues caused by financial losses on reverse mortgages, forward loans, and a general upswing in the amount of loans applied for and granted.

For the first time in its existence, the FHA might actually require federal assistance after remaining financially autonomous by generating its own revenue free of United States tax dollars. 

As the FHA attempts to recoup its recent operating losses, what this means for prospective homeowners looking for assistance in acquiring a loan are higher upfront mortgage premiums; mortgage insurance premiums (MIP) will no longer be excused once the loan is paid down to 78 percent of the original value (previously, once this milestone was reached by the buyer, they would no longer be required to pay the MIP); and more stringent requirements for borrowers with poor credit scores. 

However, despite these changes, FHA-backed mortgage loans remain the primary means for lower-income families in the United States to purchase a home and become part of a community. With the backing of a government agency and approved lenders who must adhere to strict guidelines, is it any wonder, despite the country being in the grip of a strong recession, that more than four out of every 10 first-time buyers purchased their homes with an FHA-insured mortgage in 2012.  Will you be among the families that figure into 2013’s FHA statistics and achieve your dream of home ownership? 

Every situation is different when it comes to FHA qualification. Keystone Realty USA has professionals on staff that can help decide if an FHA loan is for you. Our mortgage consultants have been in business since 1979. In their 24 years of service to the residential and commercial markets, they have placed millions of dollars in loans, frequently closing loans which had been considered hopeless possibilities. Contact us today if you are considering FHA qualification or if you are thinking about purchasing a property.