The Federal Housing Administration (FHA)

It is impossible to determine where our countries financial stability would be without the FHA. Before it was established in 1934 the typical home loan was short term (5-15 years). These loans required principal repayment at the end of the loan, which means the loans were not amortized. The FHA was created to show the way for homes loans which would be long term and amortized through governmental insurance programs for lenders willing to work in the government program. The FHA created the most important financial instrument in modern housing finance. It created the level-payment plan, through it fully amortized loans. Unlike conventual loan insurance the FHA completely protect its approved lenders from all loss. House may or may not drive our market place, but the result of housing affordability does. Often a new home means new household purchases. With its power to approve or deny housing loans it influenced the growth of the nation. Today the FHA mortgage insurance is still an important tool which the federal government uses to expand home ownership opportunities for first time home purchasers and many others. There was a short period of time when the influence of the FHA fell into the decline of an organization in its senior years, but with the crash of 2007 it regained it composure and influence of the U. S. housing market.

The FHA is a U.S. government agency which insures loans by private lenders that meet its property and risk standards. The borrower pays for the insurance that protects the approved lender against any borrower default. The FHA targets loan borrower who is slightly weaker in their financial circumstances than the typical prime conventional borrower. You may be able to qualify for a FHA loan with a credit score as low as 500, but this low score will affect your minimum downpayment. When your credit score is between 579 and 500 you will be required to but down 10%. However, when your score is above 580 then you will be asked to put down 3.5%.  Also, the FHA is more forgiving of past financial failures. Usually, it only two years after bankruptcy and three years after foreclosures.

The biggest problem people had with these loans in the past was the loan limits.

 That has been changing lately. For more information you should visit https://fhaloans.guide/loan-limits  to find your states and county’s FHA loan limit. As an example I live in Southern California. According to the site “California has 58 counties with FHA Limits ranging from a low of $498,257 for a 1-bedroom unit in Amador County to a high of $2,211,600 for a 4-bedroom unit in Alameda County.” I mainly work in two counties; San Bernardino and Riverside.

 Again, the site shows their low and high limits. San Bernardino County $644,000 is the low and the high is $1,238,500. For Riverside those numbers are$644,000 and $1,238,500. It this time the FHA requires two insurance premiums. The up-front mortgage insurance premium or (UFMIP), which is usually is around 1.75% and the mortgage insurance premium (MIP). There are two types of insurances which protect the lender whenever a borrower defaults on a loan. One is private mortgage insurance (PMI) the other is Mortgage insurance Premium (MIP) the main difference is PMI is used by conventional lenders and MIP is used by FHA loans. People talk about these PMI and MIP as though they come with a lifetime sentence. Once you have above 20% equity in your home they drop off within a year or you can contact the program and have them removed with prof of 20% equity.

The FHA importance would be hard to overstate. It has helped this nation grow by giving a path of homeownership to your average person.

Note: Images on this blog site are from a free source or taken by the author. No image or group of photos is intended to represent the people the author serves. The author does not care about Race (that is a politically correct term that he does not like because we are all of the same Race, the Human Race. He prefers the term ethnicity), color, religion, sex, gender, marital status, disability, genetic information, national origin, source of income, Veteran or military status, ancestry, citizenship, primary language or immigration status. He is a service provider for all people. We will all rise together when we band together and help one another. Joseph Erwin is a Real Estate Broker, DRE # O2131799, and a CA general contractor # B 696662. He’s a member of the CRMLS and The East Valley Association of Realtors located in the Inland Empire region of Southern California.