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What is the FHA?

A Foreclosure Home Sign

The Federal Housing Administration (FHA) is a division of the the Department of Housing and Urban Development (HUD). Generally, the goal of FHA is to encourage home ownership and better housing standards throughout the United States. While the FHA has had many roles over the course of the nearly 90 years it has existed, these days, it's main role is to provide banks and other lenders with mortgage insurance. FHA is one of the largest mortgage insurance agencies in the world, and is one of the few government agencies that is entirely self-funded.

FHA Mortgage Insurance

It's for lenders and banks who provide mortgage loans to the public. In the event that a homeowner defaults on their mortgage payments, mortgage insurance kicks in, and the lender is able to collect the unpaid portion of the loan, or any losses they might incur due to a foreclosure. Mortgage insurance is very common, and is offered by both private companies and the FHA, the largest public mortgage insurer in the United States. If a home under FHA mortgage insurance goes into foreclosure or a homeowner defaults on their mortgage, the FHA then pays the lender the amount lost on the defaulted loan.

FHA mortgage insurance is paid for by the homebuyer, and is worked into their monthly mortgage payments. In most cases, it is not as costly as private mortgage insurance. Once more than 78% of a home's total value has been paid off by the homeowner, the cost of FHA mortgage insurance drops dramatically, as the period of highest risk is thought to be over.

Why are FHA Home Loans Different?

FHA home loans are mortgage loans that are provided to the public with the backing of FHA mortgage insurance. Oftentimes, banks and private lenders have very strict regulations for who they provide loans to, and this can leave out many buyers. However, FHA insurance-backed mortgages allow lenders to provide loans to more 'risky' homeowners, since they have the confidence that any default will be insured by the Federal government. FHA loans often require much less of a down payment (usually no higher than 3.5%) and give more leeway to homebuyers in terms of their income and credit history. FHA mortgage insurance allows people who would not normally qualify for a mortgage to be able to buy their own home.

FHA Refunds

In many cases, homeowners who have either paid off their FHA-insured mortgage, sold their home, or refinanced to a non-FHA mortgage are eligible for refunds of their insurance payments. However, you have to have originated your loan after September 1, 1983, and before December 8, 2004. You also cannot have defaulted on any payments of your mortgage, and you have to have paid your mortgage premium at the time your mortgage closed. The best way to find out if you are eligible is to get in touch with an FHA office or representative in your area to find out if you are owed money.

FHA Distributive Share Payments

If you originated your mortgage after September 1, 1983, and terminated it before November 5, 1990, you may be eligible for 'distributive share' payments from FHA, another type of refund. Some exceptions may apply, and you can visit to learn more.

FHA Fixer Upper and Handyman Special Loan Discount Opportunities

Getting a 203(k) loan from FHA and HUD is one of the best ways to buy a fixer upper home, because it allows you to get a loan to fund the costs of repairs and the mortgage on the property in one package loan. This loan requires that the homeowner put together a feasibility proposal, detailing the specific costs of repairs and the value of property after repairs are made. If lender that provides 203(k) loans approves the loan, the down payment is usually 3.5% of the total cost of the mortgage loan plus repairs, a great deal by any standard. For anyone looking at buying FHA homes to fix up, this is a great opportunity to make the process easier and more affordable.

FHA Foreclosure Homes

Foreclosure homes that were formerly sponsored by FHA mortgage insurance can also be great ways to buy property. Since the lender has recovered at least a portion of the unpaid mortgage loan through their FHA insurance, they often sell FHA foreclosures for far below their actual value, creating great opportunities to save for homebuyers. FHA foreclosure home sales are open to the public, and like all foreclosures, can be purchased for anywhere for up to 60% below their market value.

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