FHA Mortgage Guarantees

Designed to Make Home Ownership Easier

FHA and Government Loan Guarantees

What is the National Housing Act?

During the Great Depression, the National Housing Act of 1937 was passed.

Its purpose was to make housing and mortgages affordable during a time when many citizens were struggling financially, often to the point of requiring assistance for items as basic as food and clothing.

The National Housing Act included the creation of the Federal Housing Administration (FHA), which still functions in the U.S.

This act worked to halt bank foreclosures and had a huge impact on both the home loan and the home building industries.

But the National Housing Act did not do anything to help inner city housing problems and instead intensified racial segregation, promoting the single family detached home and favoring the suburbs as the preferred locale for living.

What is the FHA?

The FHA is a government agency - part of the Department of Housing and Urban Development(HUD), which seeks to improve housing standards.

The FHA helps prospective home buyers - especially low income buyers - who are seeking mortgages.

HUD also works to ensure adequate housing conditions for all citizens and strives to stabilize the home loan market.

The FHA helped grow the housing market and worked with banks to make sure that loans were made available to many consumers previously deemed unqualified by insuring or guaranteeing those loans.

It also addressed mortgage standards and procedures, resulting in an increase in home ownership since it was first instituted.

Over the course of its existence, the FHA has made home ownership possible for veterans, the elderly, handicapped, and low income citizens.

Additional benefits have been available for minorities, who constitute a high proportion of the FHA's customer base.

Ultimately, the FHA exists to increase home ownership in the United States, although the organization’s impact has dwindled in recent years.

How Do Government Loan Guarantees Work?

The FHA removes the risk to the lender by undertaking the responsibility for loan in case the borrower defaults.

Basically, the agency insures the loan so the bank or lender is not placed in a position to lose their investment.

These guarantees benefit buyers by allowing them to qualify for a mortgage they would not qualify for without a government loan guarantee while also allowing the lender to offer lower interest rates and/or qualifying the borrower for larger loan amounts.

FHA Programs

The FHA assists buyers by

• Allowing low down payments - as little as 3%
• Cutting closing costs which can be financed as part of the loan
• Relaxing credit qualifications

Of course, some argue that these are some of the major causes of the recent housing market collapse.

The major FHA programs are

• Helping first time home buyers - you can buy up to a four family house.
• Loans that allow you to buy a home, fix it up, and include all the costs in one loan. Or, if you own a home that you want to re-model or repair, you can refinance what you owe and add the cost of repairs - all in one loan.
• Reverse mortgages
• FHA Energy-Efficient Mortgages - to make your home greener
• financing for mobile homes and factory-built housing - two loan products – one for those who own the land that the home is on and another for mobile homes that are - or will be - located in mobile home parks.

FHA mortgages guarantees vary throughout the country and change from time to time. Visit the FHA website to determine the current limits for your area.

The Housing Crisis

Politicans are scrambling to come up with all sorts of aid to strapped homeowners and real estate speculators.

One of the vehicles they intend to use is the FHA - either by allowing greater government guarantees and/or forcing lenders to suspend foreclosures on FHA guaranteed loans.

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