The FHA (Federal Housing Administration) was initially created in 1934 during the Great Depression in order to increase home construction, reduce unemployment and insure government loan programs. Since then, the FHA exists to encourage home ownership and create affordable housing opportunities to potential buyers by providing low down payments and more lenient credit requirements. FHA Loan limits in California are higher than the conventional limits which gives you more choices when purchasing a home.
To date the FHA has insured over 37 million home mortgages. Since 2007 there has been a tremendous jump in market share moving from 3% FHA programs in 2007 to 30% FHA programs in 2010. In 2009 alone the FHA insured almost 2 million loans, 750,000 of them were first time home buyers.
There are many benefits to FHA loans, the most obvious being that it allows for lower income Americans who may not otherwise be able to afford a home to experience the American dream of home ownership.
How the FHA Program Works
The FHA acts for the most part as a government subsidized program that provides lenders with sufficient insurance to back home mortgages. While the FHA is government backed it still has a goal to be self-supporting based on insurance premiums paid by borrowers.
The FHA is not a financial institution like a traditional bank or mortgage lender that lends directly to borrowers. It actually acts as an insurer for these types of loans in the event that the borrower defaults on the loan.
Why an FHA Loan?
FHA Loans offer many advantages for a potential buyer looking to purchase a 1-4 unit property. The FHA (Federal Housing Administration) insures loans so that lenders can provide more attractive options to home buyers. FHA Loans are perfect for first time home buyers or buyers who have experienced past credit challenges.
FHA Loans Offer:
- Low closing costs – regulated by HUD
- Low monthly mortgage insurance
- Down payment may be a gift from specific sources
- Qualify for a loan 3 years after bankruptcy
- Qualify for a loan 3 years after a foreclosure