An FHA insured loan is a mortgage loan made by FHA-approved lenders, and backed by Federal Housing Administration mortgage insurance. FHA-insured loans have historically enabled lower income Americans to borrow money to buy homes they would not otherwise be able to afford.
- The FHA program originated in response to the many hardships faced by homeowners, during the 1930s Great Depression. It was within this time period that the rates of foreclosures and defaults were first acknowledged to have skyrocketed.
The FHA program was originally initiated to deliver adequate insurance for lenders. Over time, Private Mortgage Insurance (PMI) companies emerged. Now, the FHA primarily serves people who cannot afford a conventional down payment or otherwise do not qualify for PMI.
"As long as the required qualifications for a principal balance reduction are met, the Principal Reduction Program will support both FHA and PMI insured loans."
Lenders are typically willing to make larger mortgage loans because of the guarantee that they will not have to take a loss and write off should a homeowner default on the loan. When a borrower defaults on an FHA loan, the FHA uses collected insurance premiums to pay off the mortgage.
- In order to fund the obligation in any circumstance of a borrower defaulting on an FHA loan, monthly fees are assessed by the FHA to the homeowner, in addition to the upfront mortgage insurance premium of 1.5%.
- The upfront mortgage insurance premium and ongoing premiums can cost more than private mortgage insurance. In most cases, home buyers with good credit can find competitive offers that beat FHA loans.
Regardless if you have an FHA insured loan or Private Mortgage Insurance, if you are struggling to make your mortgage payments and are facing the possibility of losing your home, there is a relatively new option to help you reduce your monthly payment and keep your home: the Principal Balance Reduction Program.
FHA Loans supported within Principal Reduction Program
A Principal Reduction is a renegotiated mortgage agreement between you and your new Lender. The "Principal Balance Reduction Program" is an effective and innovative option for homeowners who need to reduce their mortgage payments and hold on to their homes.
The way the Principal Balance Reduction Program works is the current mortgage note is purchased by an Investor from the existing Note Holder, Investor, or Bank. Rather than a loan modification, the Principal Reduction Program reduces the principal balance, resulting in a lower mortgage payment.