FHA Mortgages

Overview

The FHA came into existence during the period of the Great Depression, when millions of Americans lost their homes due to foreclosure. Short-term mortgages of 3 to 5 years and balloon payments were common at that time. The banking crisis forced banks to call in loans, and since there were no refinancing options, the borrowers were unable to repay their loans, thus becoming defaulters.

For this reason, the federal banking system was restructured, and the National Housing Act was passed in 1934. The legislation created the Federal Housing Administration (FHA) agency in order to regulate the interest rates and mortgage terms on the loans it insured. The agency purchased mortgages and insured them, allowing banks to get back on their feet without risking their own capital, and also allowing people to keep their homes.

The new lending practices made it possible for more and more working class people to own homes. Commercial lenders began to offer better terms than FHA mortgages, by taking advantage of the housing bubble that just burst, but FHA mortgages are expected to make a new comeback very shortly.

How It Works

You apply for an FHA loan in the same way as you would for any other type of mortgage loans. Given the housing meltdown, the FHA is likely to be on point for a return to the safety of FHA insured loans. There is legislation pending that will allow the FHA to adapt its individual loan limits and develop more flexible products that would suit today's markets.

Benefits

FHA mortgages have numerous benefits when compared to other mortgage loans. For one thing, the qualifying criteria for FHA mortgages are simple and they ultimately cost less than commercial loans. The federal insurance helps in obtaining lower rates and the FHA mortgages can actually help you keep your home.

The FHA insures your mortgages, so lenders are more willing to take on the risk of lending you money. This can be especially useful for people with bad credit, including bankruptcy. Down payments tend to be very low as compared to the conventional loans, even as low as 3 percent.

Cost/Pricing

The primary cost of any mortgage loan, including FHA mortgages, is the interest you pay, and this can vary depending on the terms of the mortgage. Compare mortgages and be careful to understand the terms completely. If you refinance your mortgage loan, you may get better terms and save lots of money in the long run.

Timing

Once you have decided to acquire a mortgage, you need to start researching about them. With a little inquiry, you will be able to get much of the information you are looking for. You can then decide on which would suit your need the best and apply for it.

Companies/Industries

Although the FHA program is federal, there are many companies that can advise and help you in obtaining an FHA mortgage. You should get a variety of quotes from lenders and base your selection primarily on who can offer you the best terms for your mortgage loans. FHA Mortgage and Lend America are a couple of companies that offer FHA mortages, loans and credit cards.