Introduction to FHA Loans

Posted on 13 December 2009

Here in this article I will give you an introduction to FHA Loans. But before that let me first tell you the purpose behind the establishment of FHA.

Establishment of U.S. Federal Housing Administration (FHA)

The U.S. Federal Housing Administration (FHA) was established in 1934.  FHA was aimed at offering ownership opportunities to those people who were unable to own a home due to the limited funds or marginal credit.

FHA loans

During the ’40′s and ’50′s returning soldiers and their families have enjoyed the benefits of the FHA, and during that period they purchased homes in record numbers.

Through the construction of millions of apartments throughout the country under the Department of Housing and Urban Development (HUD), the needs of the elderly, handicapped and lower income Americans were also met.

FHA – The only self-funded government agency

According to the recent research, FHA is the only government agency that is entirely self-funded. This agency is operating at no cost to the American taxpayers!

A Brief Introduction to the FHA Loans

Briefly explaining, in reality the FHA does not provide the loan. Rather than that it provides insurance to the lenders that protects them again losses sustained through a buyer’s default.

FHA 203(k) Loans

Under the FHA 203k renovation loan program funds are provided for both the purchase of the home and the renovations of said home. Both of these funds are wrapped up into one loan.

203k-hammerhead

Once settlement on the home has taken place, then in an escrow account renovation funds are held in order to pay for the renovation work that is to be done by approved renovation contractors.

Sometimes a buyer may find a home for which the price he has to pay is much less then the price of other homes in a particular area or development. May be it is exactly where they want to live and they are ready to write up an offer on the property immediately. Although it is in really bad condition inside but they believe that their friends and relatives can help them fix it up in no time. It seems to be a great plan, isn’t it!

In this situation the catch-22 is: No bank or mortgage company would lend the money to purchase the home until the repairs are done, and it is not possible to do the repairs until the house has been purchased.

Benefit of FHA 203k Loan

If you are also facing such situation then the best choice is to enter the FHA 203k Loan. An FHA-insured 203(k) loan can help the type of buyer mentioned above. Having this loan buyer could be able to overcome a seemingly insurmountable obstacle. As FHA 203k loans enable the buyer to borrow funds for the purchase of the property in addition to this they also provide funds to make the repairs and improvements. So this is an all in one mortgage. It has one set of closing costs and one mortgage payment!

Where and to whom these loans are available?

FHA provide these loan through approved lenders nationwide. These loans are available to owners who will occupy the home themselves. These loans are not available to investors.

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This post was written by:

R. MAK. - who has written 325 posts on Loan Mortgage Credit!.


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