What is the Federal Housing Administration (FHA)?

The federal housing administration is currently known as the largest agency in the world that insures residential mortgage loans. This agency is responsible for a wide variety of different functions including setting lending limits, covering closing costs, and establishing debt to income ratios. It dates back to the great depression since it was during these times that many homes were foreclosed because of large-scale bank failures that led to the housing market plummeting. To prevent these calamities from happening again, the government stepped in with the National Housing Act of 1934. This act was responsible for creating the Federal Housing Administration, and its intent was to regulate the terms of mortgages as well as the interest rates charged by financial institutions all over the country.

This time, the Federal Housing Administration has played significant role in the United States. Since it is an agency that functions under the laws that govern how loans are guaranteed, it serves a dual function for both borrows and lenders alike. Though the agency is not responsible for lending money directly to an individual, group or an organization, it helps with facilitating the finances that others receive. Because their primary responsibility is guaranteeing the loans for those who qualify and meet specific requirements, they are included in many housing transactions that are made. Some of the most common transactions that they assist with facilitating today include, first time home buyers and those who have bad credit. Therefore, it is important to understand their role and how it applies to home buyers as a whole.

First Time Buyers – Buyer Assistance Programs

It’s not uncommon for people to want to buy a home for their family so that they will not have to pay rent. Even when they have the money available to pay a mortgage each month, they may be prevented from buying their dream home because they do not have the down payment. In fact, in some cases, it may take many years to save their down payment so that they can afford to buy their new home.

Because this situation is not a-typical but more common than most people may think, this is an area that the FHA takes into consideration. Therefore, this is one of the key functions that this agency performs, especially since their job is to assist first time home buyers with purchasing their first home. Further, in an effort to increase home ownership across the nation, the federal housing administration helps new owners by sponsoring programs that make it much easier to purchase the home that they need or want. Since most potential first time buyers have a difficult time saving the down payment for their homes, the agency has a down payment assistance program that helps people with making the purchasing.

To make sure these buyers have the help that they need, an FHA program can help owners by offering low down payment options, reducing loan interest rates, limiting high mortgage fees and deferring payments. It is also important for people to understand the definition of first time home buyers since it applies to a broader audience than most people may think. For instance, the definition does not only include people who have never owned a home before, but also those that have not owned a home within the past three years. Which means, people should look at the current guidelines to see how they apply to their individual situation.

Based on the guidelines that govern the process at the time, a first time buyer can benefit greatly from more liberal minimum requirements. For instance, the person’s credit score should be a minimum of 580 before they can be approved for a FHA loan instead of much higher to meet banking industry standards. Also, the first time home buyer may only be required to pay a down payment of 3.5% in order to qualify for a federal housing administration loan versus trying to meet much higher down payment qualification to obtain the loan from a local bank.

Bad Credit Loans – Provide a Second Chance

Another essential function that the FHA supplies to people who want to buy a home involves assistance with bad credit. Even though most loans require a higher credit score to qualify, FHA helps with filling in the gap in these areas by working with this group of potential homeowners to get over this financial hurdle. For instance, in some cases, the administration will work these applicants via credit repair programs to make sure these buyers have the information that they need in order to manage their finances correctly so that they can pay their mortgage on time and as agreed.

In order for a homeowner to qualify for this kind of loan, however, these buyer must meet specific standards and minimum requirements. Since the role of Federal Housing Administration is to guarantee the payment of these bad credit risk situations with other financial institutions, they are tasked with choosing loan applicants that will not default on these loans. Therefore, this type of FHA loan is normally geared toward those who are recovering from a loss of job, home value depreciation and other situations of undue hardship that have affected their past ability to pay.

Though the federal housing administration is commonly known for insuring mortgage loans for people who qualify, they perform a wide diversity of functions across the United States. Since the great depression and the passing of the National Housing Act in 1934, one of their primary responsibilities is to ensure the housing market plummet does not occur again. By assisting first time home buyers with low down payments, low-interest rates, and terms that they can meet comfortably, the main goal is to ensure people who want to own homes have an equal opportunity. Also, because some people have had bad credit in the past, they are often prevented from purchasing a new home again. However, with programs that cater to those who have experienced various kinds of financial hardships (due to circumstances beyond their control) they are provided with a second chance.