Get to Know Federal Housing Administration-Backed Loans

Becoming a home owner is a significant event in most peoples’ lives. Despite this, many are unfamiliar with government programs that can help them become home owners.

The Federal Housing Administration (FHA) is a division of the U.S. Department of Housing and Urban Development that sponsors many of these programs. Before the FHA was created in 1934, there was no such thing as a 30-year, fully amortizing home loan. Now, low-income borrowers have a place to turn to help them realize the dream of home ownership.

Before the FHA, home buyers needed a 20% or higher downpayment to buy a home — a huge barrier to home ownership. Today, the FHA allows borrowers with good credit to buy a home with as little as 3.5% down and to refinance easily. It remains a popular program in a tough mortgage market.

Additionally, the FHA supports home values by providing a steady source of mortgage financing for families across the country.

“In this economy,” according to Nicolas P. Retsinas, director of Harvard University’s Joint Center for Housing Studies, “it’s difficult for families to save due to low wages, and it’s difficult to have a pristine credit rating. Without FHA, they would have no place to go to get home financing.”

How do FHA-loans work? First, the FHA offers mortgage insurance on loans originated by agency-approved lenders. This FHA insurance protects approved lenders in case the borrower defaults on the loan, enabling the lender to pass along benefits to buyers like you.

Some FHA-backed loan benefits include:

• Low down payments
• Low closing costs
• Easy credit qualifying

FHA-backed loans are helping make new homeowners every day.