The Federal Housing Agency is part of the U.S. Department of Housing and Urban Development, and an FHA loan is a mortgage loan, insured by the FHA, and issued by an FHA-approved lender. But where did the FHA get its start and who do they apply to? Let’s first take a look at the history of the FHA.
History Of The FHA
In 1934, Congress created the Federal Housing Administration. The FHA then became a part of the Department of Housing and Urban Development’s Office of Housing in 1965. The FHA was created due to the housing industry crisis. At the time, two million construction workers had just lost their jobs and terms were difficult to meet for homebuyers seeking mortgages.
During the 1940s, programs like the FHA helped veterans that were returning from the war, finance their homes after the war had ended. In the following decades, the FHA sparked the building of millions of homes and apartments for the elderly, handicapped, and lower-income Americans.
The FHA has also helped fund those when soaring inflation costs threatened the survival of thousands of apartment buildings in the 1970s. The FHA has always been around to help Americans buy homes, even during the great recession. So what can be said about the FHA? With providing over $1.3 trillion in mortgage insurance on Single Family homes, Multifamily properties, and Healthcare facilities, the FHA has always helped those in need of assistance! So let’s talk about those that qualify for FHA approved loans!
Who Qualifies For an FHA Loan?
Here are the requirements to buy a home with an FHA loan:
- You must be able to document your income.
- Documentation of your rental payment history, or mortgage payment history if you already own a home.
- A credit score of 600, or better, although we can sometimes help people with slightly lower scores. Documentation showing you have the funds for at least a minimum down payment of 3.5%.
- The total of your house payment, plus your other monthly loans and credit card payments (also known as your DTI, or Debt to Income ratio), generally cannot be more than 43% of your income.
- You cannot have had a bankruptcy within the last 2 years (Chapter 7) or within the last year 1 year for a chapter 13 bankruptcy – with written permission from the bankruptcy court to enter into the mortgage transition.
The FHA wants to ensure that you can pay your bills on time, including your mortgage. If you’re in an interesting circumstance, write the FHA a letter if there is a problem with your payment history. When making a downpayment, you can use your own savings, or it may be gifted from a family member (or some other approved donor)! Now let’s talk about the benefits of choosing an FHA loan over other conventional loans.
Benefits of FHA Loans
FHA loans have significantly lower interest rates than subprime loans. FHA loans also offer fixed interest rates, compared to many other subprime mortgages that have adjustable rates. These adjustable-rate mortgages (ARMs) can cause your interest rate to jump, raising your monthly payments without warning. In addition, the majority of sub-prime mortgages carry a heavy prepayment penalty which makes it too expensive for many homeowners to refinance to a better rate.
If you decide to sell your home, you can pass down the FHA loan to whoever buys your house. This doesn’t mean whoever purchases the home doesn’t get a free ride. Those that purchase the home from the seller must meet the requirements set by the Department of Housing and Urban Development. Regardless though, there are some benefits that are clearer than others. For example, if the FHA loan’s interest rate is lower at the time than the current interest rates that are given, the homebuyer is able to choose whichever one is lower and save money over time.
Overall FHA loans are helpful for those that qualify. They not only help those that qualify for it but to those that purchase homes from those that acquired an FHA loan. There are minor disadvantages to FHA loans. But overall, the pros of FHA loans outweigh the cons.