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[F146]Federal Housing Administration Loans

by Peter Kenny, Pet

There are three government agencies that insure mortgages for homebuyers. The first is the Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development. The second is the Veterans Administration (VA) which works with active duty and non-active duty military personnel. The third is the Rural Housing Service (RHS), which is a branch of the U.S. Department of Agriculture.

Consumers should understand that only approved lenders can offer these loans to homebuyers, and there are certain required standards that the property has to meet in order to qualify for these loans.

Federal Housing Administration Loans (FHA)

Perhaps the most popular agency for home loans is the FHA. The FHA offers a mortgage financing program that insures home loans to homebuyers. The FHA does not actually make the loans to the homebuyers but instead it acts as an insurance policy for lenders. Because the financial requirements for FHA loans are more relaxed when compared to traditional commercial loans, more people are able to purchase homes.

FHA insurance work because it helps lenders to work with those who might not completely fit the lender's normal loan qualification requirements. FHA requirements reduce the debt-to-income ratio from 28/36, which is the traditional loan requirement, to 29/41 for FHA loans. FHA loans also require a lower down payment of only 5 percent or less, and they allow 100 percent of the money used for the down payment and closing costs to come from a family member. Traditional loans will not let buyers borrow the money used for those fees and payments.

There are maximum loan limits with FHA loans. These limits vary by state or region. You can visit the FHA website to find the limit for your geographical area.

VA Home Loans

Veterans Administration loans have their own policies and procedures. Qualified veterans and active-duty military personnel have been able to buy a home for as much as $417,000 without a down payment or private mortgage insurance for some time now. However the Government National Mortgage Association (Ginnie Mae) has changed its rules to allow larger VA loans if the veteran or service member can make a down payment of at least 25 percent of the portion of the home's price that exceeds $417,000.

For more information on the VA home loan programs that are currently available visit their website. There are some new changes, such as the one mentioned above, that consumers should look into if they qualify for a VA home loan.

Rural Housing Service Loans

For those who live in rural areas or small towns, they may qualify for a low-interest loan through the Rural Housing Service. The RHS offers both guaranteed loans through approved lenders and direct loans that are funded by the government. These loans are especially useful in helping low income families to get homes.

The Federal Housing Administration
More commonly known as the FHA, the Federal Housing Administration is a part of the Department of Housing and Urban Development. The FHA's role is to stabilize the housing market by helping first time buyers become owners and current owners refinance difficult mortgages. It also offers loans to Native Americans buying homes on reservations and buyers rehabilitating distressed homes.

The FHA sets requirements for the loans it insures, and also approves and monitors lenders who issue FHA-insured loans to buyers. The FHA insures those loans by collecting mortgage insurance premiums, and paying claims to lenders if the loans go into default.

Because it is a part of the federal government, the FHA is able to insure loans issued to less-qualified buyers than conventional lenders could. This enables more people to move into the market. However, it is also charged with maintaining certain standards to prevent the insurance from becoming a taxpayer burden.

Fannie Mae
Fannie Mae is acronym for the Federal National Mortgage Association. It is a shareholder-owned company with a federal charter and a public mission to buy mortgages on the secondary market, which allows lenders to continue issuing new mortgages. It is solely funded by private investor funds, and receives no federal funds, although it is subject to limited federal oversight by HUD and the Office of Federal Housing Enterprise Oversight (OFHEO).

Fannie Mae is also restricted in the value of the loans it can acquire from lenders. The conforming loan limit is determined each year by the OFHEO. The limits are similar to FHA loan limits. Although most loans are for single-family homes, it can also buy loans issued to developers of multi-family rental housing, especially affordable housing.

Once it purchases the loans, Fannie Mae packages them into mortgage-backed securities, which it then sells.

Freddie Mac
Freddie Mac is the acronym for the Federal Mortgage Acceptance Corporation. Like Fannie Mae, it ensures continued availability of mortgage capital by buying loans from lenders and selling the resulting securities to investors. It is subject to the same oversight as Fannie Mae, and is also a shareholder-owned corporation with a federal charter. It receives no federal funds. It is also subject to the same loan limits as Fannie Mae.

Without these three entities, the housing market would have much less liquidity. Mortgages would be harder to get, which would result in lower homeownership rates. It would also make homes more difficult to sell. Because all three entities avoid involving taxpayers, there is little impact on your taxes from their activities.

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Both Peter Kenny & Brad Stroh are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

Peter Kenny has sinced written about articles on various topics from Credit Cards, Finances and Best Money Market. Peter Kenny is a writer for The Thrifty Scot, please visit us at and. Peter Kenny's top article generates over 368000 views. to your Favourites.

Brad Stroh has sinced written about articles on various topics from Auto Insurance, Bad Credit Home and Finances. Brad co-founded Freedom Financial Network in 2002 and Bills.com in 2005. Bills.com and Freedom have been recognized by the Inc 500 list, Entrepreneur Magazine's Hot 100, Best Places to Work in Silicon Valley and Phoenix. Additionally, Brad was named to Si. Brad Stroh's top article generates over 33100 views. to your Favourites.