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Encyclopedia > FHA loan

FHA loan is a federal assistance mortgage loan in the United States insured by the Federal Housing Administration. The loan may be issued by federally qualified lenders. In the United States of America, Federal assistance, also known as federal aid, federal benefits, or federal funds, is defined as any federal program, project, service, and activity provided by the U.S. federal government that directly assists or benefits the American public in the areas of education, health, public... This article is about the legal mechanism used to secure property in favor of a creditor. ... The FHAs logo The Federal Housing Administration (FHA) is a United States government agency created as part of the National Housing Act of 1934. ...


FHA loans have historically allowed lower income Americans to borrow money for the purchase of a home that they would not otherwise be able to afford. The program originated during the Great Depression of the 1930s, when the rates of foreclosures and defaults rose sharply, and the program was intended to provide lenders with sufficient insurance. Some FHA programs were subsidized by government, but the goal was to make it self-supporting, based on insurance premiums paid by borrowers. For other uses, see The Great Depression (disambiguation). ... The 1930s were described as an abrupt shift to more radical and conservative lifestyles, as countries were struggling to find a solution to the Great Depression, also known as the [[. In East Asia, the rise of militarism occurred. ... Foreclosure is the equitable proceeding in which a bank or other secured creditor sells or repossesses a parcel of real property (immovable property) due to the owners failure to comply with an agreement between the lender and borrower called a mortgage or deed of trust. ... Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. ...


Over time, private mortgage insurance (PMI) companies came into play, and now FHA primarily serves people who cannot afford a conventional down payment or otherwise do not qualify for PMI insurance. PMI is Private Mortgage Insurance. ...


August 31, 2007, FHA added a new refinancing program called FHA-Secure to help borrowers hurt by the 2007 subprime mortgage financial crisis.[1] The subprime mortgage financial crisis, is an ongoing financial crisis that has caused a sharp rise in home foreclosures. ...

Contents

The history of FHA loans

The National Housing Act of 1934 created the Federal Housing Administration (FHA), which was established primarily to increase home construction, reduce unemployment, and operate various loan insurance programs[2]. The FHA makes no loans, nor does it plan or build houses. As in the GI-loan program, the applicant for the loan must make arrangements with a lending institution. This financial organization then may ask if the borrower wants FHA insurance on the loan or may insist that the borrower apply for it. The federal government, through the Federal Housing Administration, investigates the applicant and, having decided that the risk is favorable, insures the lending institution against loss of principal in case the borrower fails to meet the terms and conditions of the mortgage. The borrower, who pays an insurance premium of one half of 1 percent on declining balances for the lender's protection, receives two benefits: a careful appraisal by an FHA inspector and a lower interest rate on the mortgage than the lender might have offered without the protection. The FHAs logo The Federal Housing Administration (FHA) is a United States government agency created as part of the National Housing Act of 1934. ...


Until the latter half of the 1960s, the Federal Housing Administration served mainly as an insuring agency for loans made by private lenders. However, in recent years this role has been expanded as the agency became the administrator of interest rate subsidy and rent supplement programs. Important subsidy programs were established by the Housing and Urban Development Act of 1968.[2] Year 1968 (MCMLXVIII) was a leap year starting on Monday (link will display full calendar) of the Gregorian calendar. ...


In 1974 the Housing and Community Development Act was passed.[2] Its provisions significantly altered federal involvement in a wide range of housing and community development activities. The new law made a variety of changes in FHA activities, although it did not involve (as had been proposed) a complete rewriting and consolidation of the National Housing Act. It did, however, include provisions relating to the lending and investment powers of federal savings and loan associations, the real estate lending authority of national banks, and the lending and depositary authority of federal credit unions. Year 1974 (MCMLXXIV) was a common year starting on Tuesday (link will display full calendar) of the 1974 Gregorian calendar. ... Housing and Community Development Act, the name of several United States federal laws, may refer to: Housing and Community Development Act of 1974 Housing and Community Development Act of 1980 Housing and Community Development Act of 1987 Category: ... The Federal Housing Administration was begun as part of the New Deal in 1934. ...


Further changes occurred in the 1977 Housing and Community Development Act, which raised ceilings on single-family loan amounts for savings and loan association lending, federal agency purchases, FHA insurance, and security for Federal Home Loan Bank advances. In 1980 the Housing and Community Development Act was passed; it permitted negotiated interest rates on certain FHA loans and created a new FHA rental subsidy program for middle-income families.[2] Also: 1977 (album) by Ash. ... Year 1980 (MCMLXXX) was a leap year starting on Tuesday (link displays the 1980 Gregorian calendar). ...


On March 6, 2008 the "FHA Forward" program was initiated. This is the part of the stimulus package that president Bush had in place to raise the loan limits for FHA.[3]


How to obtain an FHA loan

FHA does not make loans. Rather, it insures loans made by private lenders. The first step in obtaining an FHA loan is to contact several lenders and/or mortgage brokers and ask them if they originate FHA loans. As each lender sets its own rates and terms, comparison shopping is important in this market. A mortgage broker acts as an intermediary who sources mortgage loans on behalf of individuals or businesses. ...


Second, the potential lender assesses the prospective home buyer for risk. The analysis of one's debt to income ratio enables the buyer to know what type of home can be afforded based on monthly income and expenses and is one risk metric considered by the lender. Other factors, e.g. payment history on other debts, are considered and used to make decisions regarding eligibility and terms for a loan.


Section 251 insures home purchase or refinancing loans with interest rates that may increase or decrease over time, which enables consumers to purchase or refinance their home at a lower initial interest rate.


FHA's mortgage insurance programs help low- and moderate-income families become homeowners by lowering some of the costs of their mortgage loans. FHA mortgage insurance also encourages lenders to make loans to otherwise credit-worthy borrowers and projects that might not be able to meet conventional underwriting requirements, protecting the lender against loan default on mortgages for properties that meet certain minimum requirements -- including manufactured homes, single and multifamily properties, and some health-related facilities. The basic FHA mortgage insurance program is Mortgage Insurance for One- to Four-Family Homes (Section 203(b)).


The adjustable rate

FHA administers a number of programs, based on Section 203(b), that have special features. One of these programs, Section 251, insures adjustable rate mortgages (ARMs) which, particularly during periods when interest rates are low, enable borrowers to obtain mortgage financing that is more affordable by virtue of its lower initial interest rate. This interest rate is adjusted annually, based on market indices approved by FHA, and thus may increase or decrease over the term of the loan. In 2006 FHA received approval to allow hybrid ARMs, in which the interest is fixed for the first 3 or 5 years, and is then adjusted annually.


Down payment grants

Down payment assistance and community redevelopment programs offer affordable housing opportunities to first-time homebuyers, low-income and moderate-income individuals and families who wish to achieve homeownership. Grant types include seller funded programs the [2]Grant America Program and others, as well as programs that are funded by the federal government, such as the American Dream Down Payment Initiative, or local governments, often using mortgage revenue bond funds.


On May 27, 2006 the IRS issued Revenue Ruling 2006-27, categorizing the non-profit seller funded down payment assistance programs(DPA programs)as "scams".[4] The IRS ruled that organizations such as AmeriDream and Partners in Charity are no longer eligible for non-profit status and are not acting as "charitable organizations" as defined by the IRS. This ruling was based largely on the circular nature of the cash flows, in which the seller pays the charity a "fee" after closing. Many believe that the "grant" is really being rolled into the price of the home. According to the Government Accountability Office, there are higher default and foreclosure rates for these mortgages.[5] General Accounting Office headquarters, Washington, D.C. The Government Accountability Office (GAO) is the non-partisan audit, evaluation, and investigative arm of Congress, and an agency in the Legislative Branch of the United States Government. ...


On October 31, 2007 the Department of Housing and Urban Development adopted new regulations banning so-called "seller-funded" down payment programs. The rule stated that all organizations providing down payment assistance reimbursed by the property seller "before, during, or after" that sale, must cease providing grants on FHA loans by October 30, 2007, with the exception of the Nehemiah Corporation. Nehemiah is the beneficiary of a lawsuit settlement with HUD in April 1998. The terms of that settlement will allow Nehemiah to operate until April 1, 2008. Ameridream was granted an extension to the rule until February 29, 2008. [6]


Several similarly operated government grant program were introduced in response to the IRS Revenue Ruling in May 2006. Their governmental status made them exempt from the IRS Ruling but they are still affected by the HUD Rule Change. One such organization was The Grant America Program which was conducted by the Penobscot Indian Nation and had been available to all homebuyers in all fifty states.[7]


Private mortgage insurance

Main article: Private mortgage insurance PMI is Private Mortgage Insurance. ...


Private mortgage insurance (PMI) guarantees home mortgage loans that are conventional, that is, non-government loans. This private business loan program is equivalent to the FHA and the VA loan programs. FHA may mean: Family Holiday Association. ... A VA loan is a mortgage loan in the United States guaranteed by the Veterans Administration. ...


The PMI company insures a percentage of the consumer's loan to reduce the lender's risk; this percentage is paid to the lender if the consumer does not pay and the lender forecloses the loan.


Lenders decide if they need and want private mortgage insurance. If they so decide, it becomes a requirement of the loan. PMI companies charge a fee to insure a mortgage loan; the VA insures a loan at no cost to a veteran buyer; the FHA charges a fee to guarantee the loan.[2]


References

  1. ^ HUD News Release 07-123
  2. ^ a b c d e Mishler, Lon; Cole, Robert E. (1995). Consumer and business credit management. Homewood, Ill: Irwin, 118-121. ISBN 0-256-13948-2. 
  3. ^ HUD News Release 08-030
  4. ^ Downpayment Assistance News » Blog Archive » IRS Revenue Ruling to end Seller-funded DPA “scam”
  5. ^ GAO-06-24 Mortgage Financing: Additional Action Needed to Manage Risks of FHA-Insured Loans with Down Payment Assistance
  6. ^ [1]
  7. ^ Grant America Program | Down Payment Assistance for Homebuyers

External links

  • FHA loans (Department of Housing and Urban Development)
  • FHA Loan Limit Calculator (City/State/Zip Loan Limit Calculator)

  Results from FactBites:
 
Let FHA Loans Help You - HUD (251 words)
FHA loans have been helping people become homeowners since 1934.
FHA has a loan that allows you to buy a home, fix it up, and include all the costs in one loan.
We have two loan products – one for those who own the land that the home is on and another for mobile homes that are - or will be - located in mobile home parks.
Refinance Your Home with an FHA Refinance — Mortgage Loan Place.com, the FHA Loan Experts (458 words)
A FHA Home Loan is a government-subsidized loan that is popular with first-time homeowners.
Check the FHA loan limit in your area.
A loan calculator can calculate how much you can afford to spend on a new home based on your current monthly payments and the amount of the loan for which you will qualify.
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