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  • Quan Barnett


The FHA stands for Federal Housing Administration and it’s an arm of the Department of Housing and Urban Development (HUD). The primary focus of the FHA is to encourage homeownership in the United States, to achieve this, the FHA insures mortgages against borrower default. They make homeownership possible for a broader range of buyers.

As at the time of creating this organization, it was discovered that mortgages financed a maximum of 50 percent of market value, and the repayment schedule was limited between the span of two to five years and required a substantial final payment to pay off the mortgage. And their main function is to ease the mortgage ending terms, they ensure mortgages against financial losses and since this has been put in place, lenders can ease their ending terms because the risk of losing money is mitigated by mortgage insurance provided by the FHA.

The benefits are numerous, its flexible lending standards for homeowners, FHA requires 3.5 percent down payment while conventional mortgage lenders require 20 down payment, which is very easy to manage. The closing cost which can be substantial can be included in the mortgage loan.

FHA also gives construction loans and certain rules are guiding those who want to build their home instead of buying an existing home ready to be sold by the owner like consideration of requirements regardless of loan-to-value, eliminating Early Start letter, Pre-Approval requirements, Form HUD-2544 Warranty of completion as a requirement for a new Construction, etc.

Some modifications in the FHA enders handbook reflect the following modification to the new construction loan programs, the site-building housing (one-to-four units), condominium units in approved projects or legal phases, manufactured housing.

FHA does not encourage flipping houses, the rules which prevent flipping usually apply to the buyer’s side of the transaction. FHA loan rules don’t forbid a borrower from selling the home purchased with an FHA mortgage at any time.

Flipping by FHA indicates a practice whereby recently acquired property is resold for a considerable profit with an artificially inflated value. FHA defines the seller’s day of acquisition as the date the seller acquired legal ownership of that property. FHA defines the resale date as the date of execution of the sale contract by all parties intending to finance the property with an FHA-insured mortgage.

The FHA has played a significant role in the legalization and institutionalizing of racism and segregation within the housing industry, the FHA was instrumental in elevating the homeownership crises. Despite its positive impact, it has been isolated to new residential developments on the edges of metropolitan areas that were considered a safer investment, and not to inner-city neighborhoods.

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