While it remains a well-known downturn in the United States’ historical economic performance, the majority of Americans owe a great deal of thanks to the Great Depression. The economic downturn of the late 1920s and 1930s is one that, despite its massive amount of damage in the short term, has been a key cause of social change and financial process for the nation’s millions of citizens.
In fact, it’s a particularly telling and influential period today, when we’re coming out the tail end of a fairly similar recession. Accustomed to the sight of foreclosure signs and loaded with skepticism for almost all financial services, the United States right now very much resembles the United States of the late 1930s – on the way upwards, yet still recovering from the events that just affected it.
Today, it’s stimulus spending – but almost eighty years ago, the big progress points that consumers of today can be thankful for were primarily government-backed insurance and lending products. An early example of this, and one that’s still in use today, is the Federal Deposit Insurance Corporation – a banking organization set up in the wake of the depression, designed to insure bank deposits.
Another, and one that will be the focus of this refinancing guide, is the FHA – the Federal Housing Administration. Despite having existed before the depression itself, the FHA was transformed from a relatively small and inconsequential organization into one with a great deal of power for many of the nation’s homeowners. Even today, it offers valuable services for low-income American families.
These include the FHA loan program – a form of lending and mortgage insurance that’s designed to assist American families on low incomes in their search for housing. Designed during a similar part of history to our current era – high foreclosure rates were the norm, alongside low consumer market confidence – it’s still very widely used by low-income individuals and families today.
An FHA loan is a relatively simple financial service. In technical terms, it isn’t a loan itself, but a type of insurance offered by the Federal government that protects lenders against the risk, expense, and financial fallout of a buyer-side default. In simple terms, it’s mortgage insurance that’s issued through the government, securing low-income borrowers for the majority of private home loans.
There are several major advantages to this, both on the lending side and on the borrowing side. The first is that it allow many borrowers to qualify for loans that would otherwise be unavailable, due to their perceived risk of default or limited financial reserves. This increases overall trading volume in the case of many lenders, offering them new business that’s guaranteed by mortgage insurance.
It also allows borrowers to purchase their own homes, often in a situation where they couldn’t do so without any public assistance. This improves housing markets across the country, particularly in the times when private mortgage insurance and lending companies lack confidence. It’s a two-direction street, and this type of measure improves things on both the borrower’s side, and the lender’s side.
However, despite the value of FHA loan programs, FHA mortgage insurance, and other services, it’s not uncommon for a family that uses a FHA loan to want to refinance their property, ‘size up’ a loan, or simply revise their financial responsibilities entirely. In this case, the borrower or borrowers will need to carry out what’s called ‘FHA loan refinancing,’ – a process involving the lender and FHA.
The standard FHA mortgage insurance rate is an additional 1.50 percent on all loan payments. It’s a relatively shocking figure for new borrowers – a substantial increase on their loan’s total repayment volume. However, due to the value offered by this type of service – it literally qualifies people that would otherwise have no access to home loans – it’s generally considered an important sunk cost.
When refinancing your loan, particularly one that’s insured with FHA mortgage insurance, your interest rates will depend upon the type of loan you’re using. Loans with an adjustable rate could move upwards or downwards as the market does. When refinancing, this type of loan can turn out as quite a tricky experience – generally speaking, it’s best talked over with your mortgage agent.
A fixed-rate loan, on the other hand, is generally less difficult to calculate. This type of loan has an interest rate that’s tied to a single one-off point, generally defined at the loan’s opening date. As you would with an adjustable rate mortgage, speak with your FHA representative and with your home loan agent when you plan to refinance, as rates can vary based on your loan and your current state.
If you’re a first-time homeowner, or would-be homeowner, that’s looking into FHA loans as a smart and viable way to purchase their first property, it’s worth considering the value that they offer, along with the simplicity of the service itself. While many homeowners will qualify for insurance from a private lender, it’s often beneficial to use services like FHA insurance, provided you qualify for it.
Whether you’re purchasing a new home or refinancing your current mortgage, dealing with a FHA loan needn’t be a tough process. Whether variable rate or fixed rate, fifteen years or thirty, keeping your loan, its insurance, and of course, your home, safe with a FHA loan is a process that’s buyer-friendly and relatively low maintenance.