FHA Home Mortgage Loan Interest Rates

The Federal Housing Administration was made in 1934 under the National Housing Act in order to insure mortgages on single family which allowed banks to issue a greater number of personal loans and mortgages without risking their very much of their own capital; but, with today’s declining housing market many of these insured mortgages have not been paid back thus making a large amount of FHA foreclosures. These foreclosures exist for several reasons including the fact that the FHA mortgage was made to help stabilize the housing market by allowing a greater number of individuals to qualify for home loans and mortgages. These individuals are often not the most financially stable of individuals even though there are several measures used to separate those desperate for a loan from those who can afford a loan. Finally, when the housing market tanked, these individuals were the first ones to feel the fiduciary pressure and to default on their loans and mortgages.

Since 1934, when the administration was made, the FHA has insured over thirty-four million mortgages nationwide. This means that through dozens of different financial institutions the government made administration guaranteed the repayment of a certain percentage of an extended loan to a bank or other lending institution. They could do this because they had tough guidelines for who they insured and who they did not insure. The first stipulation is that the established mortgage payment will be no more that thirty-one percent of the client’s yucky monthly income.

Included in your mortgage payment is the principle, annual property taxes associated with the house, interest rate payments, and property insurance. Another stipulation that a client’s total debt encumbrance (including credit card payments, automobile loans, and student loans) is less than forty-five percent of the yucky monthly income. While these guidelines seem to be pretty strict and hard for the average person to qualify for, they are much less than the average bank questions a debtor to adhere to. Therefore, people marginalized by their personal financial history have a better chance of qualifying for a loan insured by the Federal Housing Administration than through other means. This means that people who may not reckon that they have the financial stability to afford a housing loan could now qualify for a loan from a bank.

When the housing market collapsed in 2006, residential property suddenly reversed in path and started to devaluate, much like a new car does when you drive it off of the lot. This meant that lending institutions could no longer expect an bought property to be worth more than the initially extended loan which meant that people could really save money by defaulting on loans or mortgages.

Since loans guaranteed through FHA were issued to individuals who needed the extra financial help, the rate of FHA foreclosures versus regular foreclosures is extreme. These individuals do not have the resources that other individuals may have and therefore are more likely to have their home be foreclosed upon. Therefore, there are an excessive amount of FHA foreclosures on the market because they were issued to those people who would suffer the most if the housing market suddenly collapsed – which it did in 2005.