Understanding the FHA Loan Program

Not all first time home buyers understand the FHA loan program, and how it can help them. Knowing more about these kinds of government programs can stand property buyers in good stead when it’s time to look at requirements for a home or property mortgage.

What is the FHA Loan Program?

The Federal Housing Administration, or FHA, operates the FHA loan program, in conjunction with the federal office of Housing and Urban Development, or HUD. Home ownership has always been a prime goal of the federal government, as officials have understood the positive impact of neighborhoods where many residents own their own homes. To this end, the FHA loan program makes it easier for a wide variety of borrowers to obtain a mortgage on a property.

How it Works

The FHA loan program works by insuring certain kinds of home loans, in exchange for requiring more lenient standards by lenders. This helps the average home buyer to get better qualification for a mortgage without a lot of existing assets or savings.

Where many conventional mortgage lenders require as much as 20 percent as a down payment, the FHA loan program provides for offering home buying families a down payment of just 3.5 percent. The FHA points out that this loan program involves loans for 1 to 4 unit properties for primary residence, not larger housing properties for investment.

Other FHA Offers

In addition to the FHA loan program for home buyers, the FHA also offers a reverse mortgage program for seniors, and others who need to get money out of their mortgage. Some homeowners who may have put equity into their homes over the years, end up “cash poor” --they have a lot invested in their house, but they don’t have enough income to pay their bills. When this happens, an FHA reverse mortgage can be an effective way to deal with a home budget, although it’s critical that borrowers understand that they are losing equity out of their property.

Another popular offer from the FHA is called an FHA title 1 loan. This kind of loan provides for home improvements by the occupying family. An FHA title 1 loan can be extremely helpful in allowing families to stay in their homes, and maintain them up to livable conditions. For example, many families may not have a large amount in savings for a necessary roof repair, that may cost several thousand dollars. Under the parameters of the FHA title 1 loan program, a specialized home improvement loan can help these families budget their necessary improvement costs, and pay them off with a long term payment plan including reasonable interest rates. The idea is that homeowners who go to the private lending market for these kinds of situations, can end up paying egregious interest rates and getting caught up in debt spirals.

Aside from the FHA programs mentioned above, the federal government has also started to look at helping homeowners who experience financial hard times to stay in their homes, through refinancing, loan modification and more. Projects of the Make Home Affordable program, a relatively recent federal government initiative, are aimed at supporting homeownership, through tough economic environments. The more families know about these opportunities, the better. So research how the FHA can help in any financial issue related to home ownership.