History of FHA Loan Requirements
FHA loans were created by the Federal Housing Administration (FHA) after the Great Depression to make home loans affordable and available to a wider spectrum of the population. Since then FHA loans have only increased in popularity amongst home owners, and still fulfills the same objective, which is making home ownership more affordable for people who might not otherwise be able to make a home purchase. Essentially FHA is a government organization that backs and insures private loans and lenders against losses due to foreclosure and default, which in turn allows those lenders to relax some of their qualifying requirements.
Other People Are Reading
-
Down Payment
-
When the FHA home loan program was first released, it was with the intent that the federal government would provide the down payment for consumers. In place of this today, the current requirement to obtain an FHA loan is a down payment of 3.5 percent paid by the buyer. However, this down payment can be given as a gift from a family member, so the buyer might not need to produce the entire amount.
Credit
-
As the credit system has changed and evolved over the years, the loan process for FHA loans has been refined. In 2006 nearly anyone could walk into an office and have an approval for an FHA loan due to very relaxed underwriting guidelines that did not specify minimum FICO scores. If a customer had a good excuse about late payments or missed payments, many of these consumers could get a home loan. However, as lending practices became more relaxed, foreclosure rates began rising. This caused FHA underwriting departments to reassess many of their polices and have much more strict requirements in regard to FHA loan approvals.
-
Mortgage Insurance
-
One of the defining factors of FHA government backed loans is the additional fee of mortgage insurance premiums added to a monthly payment. This fee is provided to a lender to protect the lender from large losses in the event of a default or foreclosure on the property. Since 1965, the rate has been 0.5 percent of the annual payment amount, however, recently has changed to 0.55 percent for buyers putting less than 5 percent down on a home.
Signficance
-
Without FHA loans many home owners would be required to have at least 20 percent of the purchase price of a home available as a down payment. Since this is not a reality for many working class families, the FHA program has succeeded in making home ownership an affordable reality for American families nationwide.
Considerations
-
When it comes to loans and loan underwriting departments the only thing that is consistent is change. There are constant changes and modifications being done to FHA loan programs, and it is important for real estate professionals and buyers to be educated on any new information in regard to these loans during a transaction. Since the loan is not final until all of the closing paperwork is signed, should you face changes from contracting on a home to closing on a home, it is to be expected.
-
