FHA Helps People Buy Homes, Avoid Foreclosures

The Federal Housing Administration has been around since the 1930s, when it was formed in order to stop the tide of foreclosures brought on by the Great Depression and to help low-income Americans realize the dream of owning their own homes.  But they offer a lot more than just low interest rates for homebuyers and the government backing that encourages banks to approve loans for otherwise risky homeowners.  In fact, they do a lot to help economically depressed Americans pull themselves up, get into suitable homes, and find ways to stay there.  In short, they are a godsend in our current economy.  Here’s how they help people and why other countries should take a page from their playbook.

First and foremost, they help people to get home mortgage loans.  Although they are not a lending institution, they do provide government-backed mortgage insurance for home buyers that have income or credit issues that would otherwise bar them from buying a house (or qualifying for private mortgage insurance).  Although applicants will still have to meet eligibility requirements in order to get approval for this type of mortgage insurance, the guidelines are there to protect both the banks and the homebuyers in order to ensure that no family is saddled with a mortgage payment they can’t afford and no bank is left holding a property in default.

And the requirements are fairly straightforward.  The monthly costs associated with home ownership (mortgage, interest, insurance, etc.) cannot exceed 31% of the buyers gross income, and the buyer must have steady employment (minimum two years) with the same employer at the same (or higher) salary.  The buyer must also have a clean credit history for at least two years following bankruptcy or three years following foreclosure.  And the property must be inspected and approved by an FHA representative before a sale can go through.  There are more rules particular to specific cases, but the basic idea behind all of them is protection for homeowners and banks against the type of irresponsible lending (and borrowing) that crashed the housing market and sent the global economy into a downward spiral in recent years.

Of course, the FHA doesn’t just hand over the cash and then leave people to their own devices; instead they provide for further protections with programs that help homeowners to avoid defaulting on their loan and facing foreclosure even if they get into financial hot water.  For example, they offer the Home Affordable Modification Program (HAMP) that helps homeowners to reduce monthly payments by deferring debt (to be paid at a later date) in order to reduce monthly payments to a sum that the owners can currently afford.  They also have a program called HOPE for Homeowners (H4H) that will help struggling homeowners to refinance with an FHA-insured loan (likely lowering their payments by a significant margin).

Although FHA loan limits definitely exist, the truth is that the organization provides an option for responsible adults to get into affordable housing, despite past problems with credit history or a current income that is low.  This in turn has the potential to stimulate economic growth, help low-income families to pull themselves out of devastating conditions, and ultimately, create a brighter future for the people of one nation and the world as a whole.