Federal Housing Administration (FHA) Loans

FHA home loans are mortgage loans that are insured against default by the Federal Housing Administration (FHA).  FHA loans are available for single family and multifamily homes. These home loans allow banks to continuously issue loans without much risk or capital requirements. The FHA doesn't issue loans or set interest rates, it just guarantees against default.

FHA loans allow individuals who may not qualify for a conventional mortgage obtain a loan, especially first time home buyers. These loans offer low minimum down payments, reasonable credit expectations, and flexible income requirements.

When the Great Depression hit in 1929, millions of Americans began to loose their homes to foreclosure. Short term mortgages (3-5 years) and balloon payments were common. The banking crisis during the 1930s forced banks to call in loans, and there were no refinancing options for the average homeowner. 

As a result the federal banking system was restructured and in 1934 The National Housing Act was passed. This legislation created the Federal Housing Administration (FHA) with the intent to regulate interest rates and mortgage terms on the loans that it insured. The agency purchased mortgages and insured them, allowing banks to turn around and make another loan without putting out substantial capital of its own. 

The new lending practices made home purchase possible for many of the country’s working people. In 1965, the FHA became an arm of the newly formed Department of Housing and Urban Development. Since 1934, the FHA and HUD have insured over 34 million mortgages. 

The FHA has also been active in financing the development of multi-family housing. During the 1960s and 1970s the FHA contributed to federal community development projects by financing millions of units of privately owned rental units for the elderly, the handicapped and lower income Americans. Over the last three decades, the FHA has backed most of the loans provided to inner city families and minorities, providing homeowner status to people who have historically struggled to obtain home loans. 

When housing prices began to spiral upward in the 1990s, lenders developed mortgage products designed to help people buy homes that had suddenly been priced beyond their reach. The FHA 3% down payment was matched and surpassed by mortgage packages that provided 100% financing for homes to qualified buyers. As home prices continued to rise, the qualifications for loans were loosened accordingly. 

The FHA’s caps on conventional loans had contributed to a diminished role for the agency but recently passed legislation has raised many of those limits.  The rising rate of foreclosures on “exotic” mortgage packages has sparked the return to the safety of FHA insured loans. 

A few of the main points of recent legislation are the creation of a “first-time home buyer credit”, and a permanent increase in the “conforming” and “FHA” loan limits.  These changes make loans with favorable terms available to a new group of people.   Enterprise Home Loans is an FHA approved Mortgage Banker fully up to speed on all FHA guidelines. Apply now or call 800.917.8997 to see if you qualify for an FHA loan.

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