Get rid of all government programs, REALLY?
In the case of FHA (Federal Housing Administration) and HUD (Department of Housing and Urban Development) You may be throwing the baby out with the bath water. 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 home buyers 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.
The American Dream of home ownership was really just a dream. For most people it simply was not part of any reality they faced. Can you imagine needing 50% down and then only having a 3-5 year period to payoff the loan or arrange other financing. It’s no wonder that only 4 out of 10 household were living in property they owned. By comparison home ownership statistics for 2018 (US Census Bureau) show 64.4% of homes are owned by the person residing there. Those numbers are down only slightly from the peak in 2004 (69.4%) but consistent with the 50 year average. So through programs like FHA, DVA (veterans) and secondary mortgage markets like Fannie Mae and Freddie Mac home ownership is available to a much broader segment of the population.
Most of the government programs do not actually loan money to buy homes. Instead, they provide insurance against possible mortgage default by the home owner. This reduces the risk to financial institutions who borrow the money. The homeowner pays MIP (Mortgage Insurance Premium) each month with their regular payment as well as a 1.75% upfront fee to secure the insurance.
This insurance does not insure the entire mortgage amount and the companies that borrow still carry some of the risk.
There are a number of different loan programs that are available to homeowners. Working with a competent and experienced mortgage professional is critical. You need to have someone who works for your best interest and has access and knowledge of the various programs in order to get the product that is best for you. You should be aware that all mortgages are not available through all mortgage providers. Your real estate professional should have a basic understanding of programs and be able to recommend a couple of options.
There are also programs for people who want or need to refinance (new mortgage on an existing home). If you think your current rate is too high you should check out what is currently available.
Home ownership is now available to most people. With a little planning, research, and guidance you can have the American Dream.