In the real estate industry, Federal Housing Administration (FHA) insurance is like a "government seal of approval" on housing (Bloomberg.com). Since 1934 the FHA has provided insurance backing on mortgages issued by lenders approved by the government branch. Although the program launched as a way to help lower-wage earning Americans get involved in the home owning game, the coverage is now being offered throughout New York's luxury condo market.
One luxury condo in New York not only features properties ranging from $820,000 to $3 million, the units have been approved for FHA mortgage recognition. Within the city, the government agency will provide loan insurance up to $729,750. Additionally, borrowers will be able to get a loan for up to 96.5 percent of the purchase price.
The "Tempo" (98-unit Gramercy Park development) is one building that recently tapped into the trend, but it is not the only option. Since the government agency has tweaked its financing rules in response to the stalled real estate market, the changes made in December of 2009 have encouraged several New York City luxury condo developments to apply for the assistance.
History of the FHA
The FHA was born of the National Housing Act of 1934, which was established to help bolster the economy after the great depression. In its original incarnation, the FHA was charged with calculating property appraisal value based on eight criteria. In 1965, the agency became a branch of the Department of Housing and Urban Development (HUD).
Prior to the advent of the FHA only four out of every 10 households owned their homes. Since 1934, the FHA has helped more than 34 million people become homeowners and has switched the American landscape from being one of renting to evolve into a nation of homeowners.
Why FHA Loans are Enticing
Throughout history, FHA loans have been considered to be some of the most forgiving in the real estate market. Lenders favor the loans as the financial muscle of the U.S. Government is behind them. FHA loans are guaranteed in the form of insurance payment in cases of consumer default and provide a sense of stability for mortgage issuers.
Consumers are also fond of FHA loans for a multitude of reasons. Loans issued by non-FHA backed lenders tend to require consumers to make a 5 percent to 20 percent down payment on a home, while FHA loans require an upfront investment of 3.5 percent (new laws were recently passed requiring a minimum down payment for 10 percent for those with FICO scores less than 580). Additionally, FHA loans do not require a perfect credit history and allows more flexibility in the matter.
Disadvantages of FHA Loans
While FHA backed loans can certainly be a good choice, it is not the only option potential homebuyers should consider. New York City is the nation's most expensive housing market and the $729,750 maximum only applies in that local market. Typically, FHA loans do not provide coverage on such large sums of money.
Additionally, FHA loans have very restrictive insurance payment measures. Homeowners will be responsibly for paying off the insurance premiums as part of their mortgage payments for many years. In the long run, some consumers may experience ongoing payments that cost more than private mortgage insurance.
Consumers looking to finance the purchase of a home need to consider all mortgage opportunities before signing on the dotted line. Mortgage Marvel is an excellent tool that can make comparing private lender mortgages simple courtesy of the up-to-date mortgage rate and fee quotes from multiple lenders produced on easy-to-understand table.
