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What Are FHA Home Loans?

An FHA insured home loan is considered one of the best loan choices available today for any homebuyer seeking a low down payment combined with relatively easy qualifying standards.  The Federal Housing Administration (FHA) is part of the U.S. Department of Housing and Urban Development (HUD).

FHA does not actually make the loan.  The loan is actually funded by an approved FHA lender in conformance with FHA lending guidelines.

FHA simply protects the lender from loss in the event of borrower default.  By guaranteeing the loan, FHA is providing a type of federal assistance which helps low and moderate income homebuyers afford a home.

The FHA program was created in the 1930’s during the Great Depression as a tool to stimulate the US economy and stabilize the housing market.  Since that time, many millions of low and moderate income borrowers have purchased or refinanced their homes using FHA loans.

 

Why Have FHA Loans Become So Popular Again?

During the housing boom, FHA loans were not so widely used.  In 2007, FHA loans only made up about 3% of all loans funded nationally.  During that time, FHA loans were not as attractive as conventional loans due to FHA’s loan limit restrictions, higher mortgage insurance costs and stricter appraisal guidelines.  At that time, conventional loan products offered interest only options, 100% financing choices and low doc alternatives that tended to outshine the benefits offered by FHA loans.  Today, just about all of the loan products that previously competed with FHA loans are no longer available.  Lenders now consider the previous products to be too risky and many people accuse those loan products (especially subprime products) as the root cause of the financial crisis and ultimately responsible for undermining the entire world economy.

In 2018, it was estimated that one out of every five mortgage loans originated in the United States is an FHA Loan!  This is because FHA loans are considered easier to qualify for while also offering a lower down payment (3.5%) than the 20% required for most conventional loans.  Another factor that has made FHA loans more competitive is the fact that real estate values have decreased, yet FHA loan limitsremain unchanged.  Therefore, many more homes are eligible for FHA financing than ever before based on the maximum loan sizes available in relation to typical sales prices.

Get Started!

Apply for a 2.75% lender rebate on your closing costs.  Contact Federal Home Loan Centers today and speak with a Government Loan Specialist by calling (661) 373-8299 or use the Apply Online.

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