The History of the FHA Loan

The FHA loan dates back quite a relatively long time, despite their growing popularity today. In fact, this type of loan dates back to about 1934 when the National Housing act of 1934 established the Federal Housing Administration, now known more commonly as the FHA. The FHA was established in hopes that home construction could be increased as well as reducing unemployment rates which were on the rise during the Great Depression.

The Federal Housing Administration and the FHA Loan

Many people assume that the loans are made by the FHA but this is not accurate. The FHA does not make any loans, it does not plan homes, and it does not build homes. What the Federal Housing Administration does is work with a lender to determine if an individual is a favorable candidate for a home loan. If the FHA determines along with the lender that the individual does qualify, the FHA insures the lender against the loss of the principal amount of the loan. What this does is allows for a lender to extend financing to someone, but if the borrower fails to make payments the lender will be able to recoup the losses from the Federal Housing Administration.

Everyone wins with this sort of deal because the borrower gets into a home and the lender is comfortable lending to someone that may have very little or even bad credit. With an FHA loan the borrower will be required to pay for mortgage insurance, which is basically paying for the insurance coverage that will be paid to the lender should they default on the payments. The insurance premium is very small and is usually half of one percent on the balance of the home and this dollar amount is usually worked into the monthly mortgage payment so this insurance payment doesn't become delinquent.

Many, many people have been able to buy a home that they would not have been able to buy without an FHA loan. Others have been able to refinance a home to make it more affordable so that they could keep the home when they might have been looking at foreclosure otherwise. While the FHA was mostly about insuring mortgages in the past the face of the organization has changed in recent years, branching out to make buying homes possible for more and more people than ever before.

While this type of loan dates back more than 70 years it is by no means outdated. While the FHA has branched out and now is known for HUD and those type of services, they are still insuring mortgages so lenders are able to provide financing to those that might not have been able to buy a home otherwise either because of past credit challenges or because they did not have a large down payment available to put down on the purchase price of the home. Anyone who is looking into buying a home may find that taking advantage of the services that the Federal Housing Administration is worth considering because the services are there for the taking and are for anyone who wants to get the best deal for themselves when buying a home. Check into what this type of loan could do for you and the affordability of purchasing or refinancing a home.