Understanding The Federal Housing Administration
If you are looking to purchase a home you are probably hearing a lot about the Federal Housing Administration and an FHA loan
. To understand what an FHA loan is you have to understand what the Federal Housing Administration is.
We will look back to the Great Depression in order to fully understand what this administration is. The banking system failed in the United States and this resulted in a dramatic decrease in home ownership.
This had a clear correlation with the number of people that were taking out loans for a home. As this number decreased the banks ran into even more problems.
The banks were suffering and so they had to collect the money that was still owed on all of the mortgage loans. Almost all of the men and women that still had money left to pay on their mortgage loan were not able to pay the money back to the bank.
After someone could not pay the money that they were supposed to back to the bank their home was foreclosed. An abundance of foreclosures resulted in the crash of the housing market as well.
The property that the bank was collecting was usually not worth the money that was left to pay on the loan. Even if it was originally worth that much money the crash of the housing market dramatically decreased the value of the home.
The American people lost their faith in the banking systems in the United States and hardly anyone was interested in taking out a loan to buy a new home. It was not until 1934 that the federal banking system was restructured.
This restructuring was exactly what many parts of our nation needed. There had to be a way that the government could restore its reputation in the eyes of the everyday Americans.
The National Housing Act of 1934 enabled the National Housing Administration to be created. The idea behind these branches of the government was that they would be able to regulate interest rates and terms or mortgages by insuring that the loan would be paid.
This revolution within the housing system in enabled many people that previously were not able to purchase a home to qualify and have the opportunity to buy a home. The size of the market for single-family homes increased dramatically because of this change.
There were eight different criteria that instructed the agents to lend more for higher appraised projects. There was a maximum cap for the amount of money that the agents were able to lend.
The two pieces of criteria that were the most important were "Relative Economic Stability" and "Protection from Adverse Influences". The stability of the person applying for a loan counted for 40% of the appraisal value and the adverse influences made up 20% of the appraisal value.
The Federal Housing Administration has taken its role very seriously since it was instituted right after the Great Depression. Up until this point the Federal Housing Administration has made sure that over 34 million home mortgages were insured.
This means that over 34 million people that otherwise probably would not have been able to be approved for a mortgage were able to. Being approved for a mortgage can change the lives of every individual in a whole family.
This program has also enabled 47,205 multifamily project mortgages. This program has had far reaching effects.
The FHA program helps you not only be approved for your mortgage but it also helps you make a down payment. Your down payment can be significantly less if you are going through the Federal Housing Administration.
There used to be nonprofit organizations that would "gift" the cost of the down payment to a home buyer. The Internal Revenue Service has since instituted laws that make it so these gifts are not deductible for the nonprofit organization.
Because of this the majority of nonprofits have stopped giving this money for down payments. This means that if your situation is really tight you may need to ask friends or family to help you with your down payment.
Understanding this government program can help you utilize all of your options when you are looking to purchase a home. Make sure that you take the time to find out if these loans are for you.
For some people, having an FHA loan has enabled them to buy a home that they otherwise would never have been able to buy. Don't cheat yourself on the opportunities that could be opened to you by these loans.
by: Tom Selwick
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