9/29/2022
When applying for a mortgage in the United States, you have a wide variety of options at your fingertips. If you don't qualify for a conventional home loan, you can always go to the Federal Housing Administration (FHA).
Given its importance, we will see in more detail how this institution appeared and what its goal is.
Brief history of the FHA
The Great Depression was a time of drastic change for working families who were considered middle or lower class. During this crisis, mortgages had terms of 3 to 5 years, an interest rate of more than 50%, and they did not have amortization plans.
In addition, the banking crisis forced the collection of overdue loans, there was no refinancing and many lost their homes. The precarious conditions led to the restructuring of the financial system and the creation of the National Housing Act in 1934.
At the initiative of former President Franklin Delano Roosevelt and the support of Congress, the Federal Housing Administration (FHA) was born that year. However, the advantages it offered to get a financed home were limited to white people.
This entity became part of the HUD (Department of Housing and Urban Development) in 1965 and the implementation of this program made it easier for people to qualify with fewer requirements to get a mortgage and reduced the risk for lenders.
This situation generated an increase in the single-family home market, boosting property ownership in the US, reaching its maximum in 2004 (69.4%).
Federal Housing Administration basic functions
The creation of the FHA had as a principle to give North American citizens the possibility of obtaining a decent home, even in unfavorable conditions. This government agency has several programs dedicated to providing financing to repair your home and also so you can buy a new or used home.
In another sense, this federal body gives you the possibility of obtaining the amount of money for which you qualify according to your current financial conditions.
In addition, it provides advice to banks and lenders to reduce risk when granting mortgages. Throughout this process, the Federal Housing Administration acts as an intermediary.
According to the above, you should not understand that this agency is in charge of lending you the money that you are managing through its system.
This organization contacts its network of affiliated institutions to obtain the resources that people request. That is why their mortgage loans are known as "FHA insured", being backed by the government.
FHA Mortgages
Here are some of the mortgages marketed by financial institutions in the United States with which you can take advantage of the aid offered by the FHA to be able to access a mortgage loan with less demanding requirements:
- Interest: Fixed-rate
- Max term: 30 años
Types of FHA mortgages
Although we have already covered some types of mortgages that you have access to in the United States, this time we will specify a little more. When you go with your case to the FHA, the options available will be the following:
- Section 245 Loan. This program is specially designed for people who expect their income to improve in the near future. Section 245 refers to the Graduated Payment Mortgage, which starts with low monthly payments and then goes up over time. There is also the Growth Equity Mortgage (mortgage of increase in value), which has increases in the principal monthly payments and can take less time to pay it.
- 203k insurance for improvements. This alternative allows you to borrow money both to make repairs to your current home and to purchase a home. In addition to including the possible costs of repairs or rehab, it can help you in the event that you do not have much money for closing costs after giving the down payment.
- HCM program. Also known as a Home Equity Conversion Mortgage, it is an option for people age 62 and older. It works like a reverse mortgage loan that gives them financing based on the value of their homes while allowing them to retain title to the property. You can choose between a line of credit or fixed monthly installments.
- Energy efficiency program. Similar to the 203k, it is intended for the application of improvements in your home to reduce expenses related to electricity. It is a mortgage loan that works under the following premise: a more rational energy consumption lowers your receipts, giving you more capital to assume this commitment. The most frequent measures include improving insulation, installing wind systems or solar panels.
Although the application process is the same, the big difference of FHA loans is that the lender can ignore your credit history. Instead, they could review your payment records (utilities, rent, etc.) or your work experience for the last 2 years.
As long as you have a decent credit score now, you can apply for financing having been evicted or declared bankrupt.
Organizations like the Federal Housing Administration are essential if they contribute to the popular welfare. If you are looking for mortgage alternatives, be sure to consult the Busconómico comparator.
Español: Qué es la FHA (Administración Federal de Vivienda)