FHA Information

The FHA helps Americans buy homes.

As a department of the U.S. Department of Housing and Urban Development (HUD), the Federal Housing Administration (FHA) guarantees mortgage loans for individuals and families who may not be able to qualify for mortgages under normal underwriting processes. The FHA provides assurance to lenders that if an FHA mortgage holder defaults on a loan, the FHA will pay the lender. Because the lender's risk is reduced, the lender is able to provide mortgages to a broader group of borrowers, including individuals with low income and individuals with less-than-perfect credit.

History

Congress created the FHA with the National Housing Act (NHA) of 1934 to ease the hardships of the Great Depression. When HUD replaced the NHA in 1965, the FHA became a part of HUD. HUD states that in the 1940s, the FHA focused on financing for military families, and in the 1950s to 1970s, the FHA assisted elderly, handicapped and low-income families in obtaining homes. As of 2010, the FHA continues to assist families in obtaining homes.

Function

The FHA strives to provide avenues for individuals and families with low income and minor credit deficiencies to purchase homes. To achieve this initiative, underwriting guidelines are relaxed for families who meet the income threshold. For example, the down payment on FHA-insured mortgages is lower than on traditional mortgages, and the borrower may finance a higher percentage of the home's value. FHA-insured loans also offer programs that may help buyers meet down-payment requirements.

Types

FHA-approved lenders offer fixed-rate, adjustable-rate, graduated-payment, growing-equity and energy-efficient mortgages. FHA fixed- and adjustable-rate mortgages allow you to borrow a higher percentage of the purchase price of your home. If you expect your income to increase substantially over the next five to ten years, a graduated-payment or a growing-equity mortgage may be an option for you. With graduated payments, monthly payments start small and gradually increase over time, and with growing-equity mortgages, payments increase as your income increases. An FHA energy-efficient mortgage allows you to finance some of the costs associated with keeping your new or current home energy efficient.

Geography

In 2010, mortgage limits for most counties ranged from $271,050 for an individual to $521,250 for a family of four. Mortgage limits for high-cost areas are higher, ranging from $625,000 for an individual to $1,202,925 for a family of four. According to HUD, the mortgage limits for Alaska, Guam, Hawaii and the Virgin Islands may be adjusted up to 150 percent of the new ceilings, which sets the 2010 mortgage limit range for these areas at $938,250 for a family of one and $1,804,259 for a family of four.

Misconception

Because of the FHA's deep involvement with home loans, the terms "FHA" and "mortgage" are often used interchangeably. The FHA administers loans but is not a lender. The FHA is an insurer that provides many programs to assist home owners in achieving home ownership. To guarantee the mortgage, the FHA charges the home owner a fee.

References

• HUD: FHA Mortgage Limits List -- FHA Forward
• HUD: The Federal Housing Administration (FHA)