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History of the FHA
Established in 1943, the Federal Housing Administration’s sole purpose was to improve and increase the ownership opportunities, as well as housing conditions for all Americans. Since its establishment, it has helped to fund the purchase of millions of homes around the country, and has set up a separate program to construct millions of apartments for Americans from the lower income group, especially the elderly. It has also played a major role in helping the housing of the armed forces of the country, i.e. veterans.
Advantages Of an FHA Mortgage Loan
By applying for a FHA mortgage loan, you can avail yourself the following benefits:
- Low Interest Rate: Since the federal government insures the loan, the lender will offer you extremely competitive interest rates. So you will save a lot of money in the long run.
- Small Down Payment: Such mortgage loans usually have a very small -e.g. 3.5% – down payment; this money can be from different sources such as an employer or charity organisation or a family member in the form of a gift.
- Ease of Qualification: Due to the reduced risk, the lender will offer the loan with terms which allow you to qualify easily.
- Higher Chance of Acceptance with Low Credit Scores: Unlike normal loans where you require an excellent credit score to qualify for low rates, you can qualify for FHA loans even with a less than perfect credit score.
- Foreclosure Avoidance: Since its purpose is to help people buy a home, in case of hard times after purchasing the home, there are options available to you to prevent a foreclosure.
How the FHA Works – The Reason Behind the Advantages of the Loan
The FHA does not directly provide the funds for a mortgage loan. What it does is provide lenders with insurance for a specific mortgage loan. This insurance (in case of a default of payment from the borrower) will protect the lender from losses -effectively reducing the risk involved in the transaction. The lender simply has to stick to certain established guidelines while putting together the loan for it to be qualified for FHA status. Because of this lowered risk, lenders will approve applications for a mortgage loan even if the credit scores of the applicant are low, and offer loans with a lower initial downpayment. Additionally the FHA is completely self-funded; its main source of funding is the insurance premium which is receives from each mortgage loan it assures. Thus your tax dollars are not even used!
The FHA has done its job consistently for over 75 years, now that you know why the advantages are offered and what the advantages are, you can consider applying for a FHA mortgage loan when you think of buying a home for yourself. Talk to your lender to see if you qualify.