The Federal Housing Administration (FHA) is a part of the U.S. Department of Housing and Urban Development (HUD). While you have likely heard of this government agency before, you may not completely understand what its purpose is.
Let’s start at the beginning.
The National Housing Act, signed by President Franklin D. Roosevelt on June 27, 1934, authorized the formation of the FHA.
The National Housing Act of 1934 was created in response to declining homeownership rates as a result of the Great Depression. It was supposed “to encourage improvement in housing standards and conditions, to provide a system of mutual mortgage insurance, and for other purposes,” as stated by the statute itself.
The Living New Deal, an online public archive documenting how President Franklin D. Roosevelt’s New Deal has affected the United States, specifically highlights the positive influence this piece of legislation and the FHA had on home ownership during this time.
It explains, “The National Housing Act and the FHA were wildly successful in supporting the great postwar boom in housing and suburbanization, in which the national home ownership rate jumped from under 50% to almost 70% of households.”
Today, the FHA continues to help numerous U.S. borrowers afford a place they can call home.
So what does the FHA do, exactly?
The FHA insures mortgage loans provided to home buyers by FHA-approved lenders. This means a lender will not suffer a financial loss if a borrower defaults on a loan.
Such loans include, but are not limited to:
- Standard FHA loans (fixed and adjustable rates)
- 203(k) loans
- Refinance loans
- Reverse mortgages
For the FHA to insure a loan, it must be for a single-family or a multi-family home—up to four units. Condominium units, manufactured homes, and townhomes also qualify.
As briefly noted above, a mortgage lender must be approved by the FHA to grant these types of loans. Consequently, you can’t just go to any lender to apply for an FHA loan. However, you can go to HUD’s official website to search for FHA-approved lenders.
HUD also explains on its website how taxpayers are not responsible for covering the costs of insuring these loans. It states,
“FHA is the only government agency that operates entirely from its self-generated income and costs the taxpayers nothing. The proceeds from the mortgage insurance paid by the homeowners are captured in an account that is used to operate the program entirely.”
“FHA provides a huge economic stimulation to the country in the form of home and community development, which trickles down to local communities in the form of jobs, building suppliers, tax bases, schools, and other forms of revenue,” it adds.
If you’re thinking about getting an FHA loan, take a moment to learn more about their limits and the required documentation you need to apply.
