FHA Loans

FHA loans are a terrific way to finance a new home purchase.  With as little as 3.5% down, you could be on your way to owning your own home at record low prices!

FHA, the Federal Housing Administration, was created in 1934 and offers government insurance on mortgage loans, which allows mortgage lenders to work with consumers with less than perfect credit.

While technically there is no minimum credit score for an FHA loan, the typical minimum score to qualify in today’s tight credit market is 620.  Higher interest rates are available on FHA loans with credit scores between 530 and 619.  At Merchants, our goal is to see all of our customers achieve the 620 score and receive the premium interest rate.  Ask our BuyReady Team how you can qualify today.

FHA does require full documentation on all purchase transactions.  This means that you must be able to prove your income through W-2’s, paystubs and/or Two Years of Income Tax returns. 

There are currently no Zero down programs available through HUD, but some states or local housing authorities may offer down payment assistance.  Many of the programs have run out of funds, which makes it difficult for Merchants to keep tabs on what down payment assistance programs are still available.  We strongly recommend that you check with your city housing authority or state housing board to see what might be available to you.  Typically FHA will allow most grant programs from non-profit housing authorities.

HUD $100 Down Program.  This program is available to anyone who qualifies for an FHA loan.  It is a standard FHA loan for consumers purchasing a HUD foreclosure.  In California, there are not an abundance of HUD foreclosures as FHA lending in California prior to 2007 was virtually non-existent.  For Arizonans, you should check with your realtor to see what HUD foreclosures are available in your area.

The Federal Housing Administration (FHA) 

What is the Federal Housing Administration?

The Federal Housing Administration, generally known as "FHA", provides mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories. FHA insures mortgages on single family and multifamily homes including manufactured homes and hospitals. It is the largest insurer of mortgages in the world, insuring over 34 million properties since its inception in 1934.

What is FHA Mortgage Insurance?

FHA mortgage insurance provides lenders with protection against losses as the result of homeowners defaulting on their mortgage loans. The lenders bear less risk because FHA will pay a claim to the lender in the event of a homeowner's default. Loans must meet certain requirements established by FHA to qualify for insurance.

Why does FHA Mortgage Insurance exist?

Unlike conventional loans that adhere to strict underwriting guidelines, FHA-insured loans require very little cash investment to close a loan. There is more flexibility in calculating household income and payment ratios. The cost of the mortgage insurance is passed along to the homeowner and typically is included in the monthly payment. In most cases, the insurance cost to the homeowner will drop off after five years or when the remaining balance on the loan is 78 percent of the value of the property -whichever is longer.

How is FHA funded?

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.

The History of FHA

Congress created the Federal Housing Administration (FHA) in 1934. The FHA became a part of the Department of Housing and Urban Development's (HUD) Office of Housing in 1965.

When the FHA was created, the housing industry was flat on its back:

• Two million construction workers had lost their jobs.
• Terms were difficult to meet for homebuyers seeking mortgages.
• Mortgage loan terms were limited to 50 percent of the property's market value, with a repayment schedule spread over three to five years and ending with a balloon payment.
• America was primarily a nation of renters. Only four in 10 households owned homes.

During the 1940s, FHA programs helped finance military housing and homes for returning veterans and their families after the war.

In the 1950s, 1960s and 1970s, the FHA helped to spark the production of millions of units of privately-owned apartments for elderly, handicapped and lower income Americans. When soaring inflation and energy costs threatened the survival of thousands of private apartment buildings in the 1970s, FHA's emergency financing kept cash-strapped properties afloat.

The FHA moved in to steady falling home prices and made it possible for potential homebuyers to get the financing they needed when recession prompted private mortgage insurers to pull out of oil producing states in the 1980s.

By 2001, the nation's homeownership rate had soared to an all time high of 68.1 percent as of the third quarter that year.

The FHA and HUD have insured over 34 million home mortgages and 47,205 multifamily project mortgages since 1934. FHA currently has 4.8 million insured single family mortgages and 13,000 insured multifamily projects in its portfolio.

In the more than 60 years since the FHA was created, much has changed and Americans are now arguably the best housed people in the world. HUD has helped greatly with that success.