Solving the HUD FHA conundrum

In the federal programs for the real estate market there are two terms that are often used interchangeably: HUD and FHA. However, just because they are used in reference to federal lending opportunities, that doesn’t mean they are the same thing or refer to the same loan types. The HUD FHA confusion stems from the fact that both of them operate in the control of the federal government, not because they are the same thing. It’s time to set the record straight. What are these two programs?

Clearing the HUD FHA Question of Differences

FHA RefinanceThe Department of Housing and Urban Development was created in the 1960’s, years after the Federal Housing Administration which had its beginnings during the Great Depression. Rather than becoming a part of the already established administration, this new department became the umbrella system for all the various government housing programs , including the Federal Housing Administration. Because of this it operates on a wider scale than the FHA; the housing administration has one purpose, which is to insure the loans given to homeowners by federally approved loan lenders.

Most of the time when you acquire a loan through a federal lending source you get a federally approved loan. This is because for most people the home they need is a simple single family residence. The Federal Housing Administration program was designed for single family homeowners as a way to make it possible for them to purchase a home. The opposite is true for a HUD loan. These loans are geared more toward the multi-family units, commercial areas, and investor situations.

In addition to the property types, the requirements and regulations for these two government entities are different as well. With federal housing loan that are geared toward an individual homeowner, the requirements for approval are a bit more lenient than a housing department loan. This means the credit score, down payment, and interest rate may be different than a loan that would be offered through the other program to an investor or commercial developer. In addition to this, the Federal Housing Administration is specifically designed for homeowners. These loans were not created to become a tool for an investor. They were created to help more families make the shift from renter to homeowner.

To give one final answer to the HUD FHA question it’s important to note the role of home renting within the federal housing department. FHA loans help people stop renting, HUD programs are in place to make it possible for them to rent when buying isn’t an option. This is why there is low-income housing and subsidized housing, for people who need a place to live – often the elderly or disabled- that cannot afford a home purchase or the rent of an unsubsidized apartment.

Similarities in HUD and FHA Housing Loans

While there are plenty of differences in the help offered by these two programs, there are a few similarities as well. First, they are both a product of the federal government, created in an effort to stimulate the real estate market and to help a greater number of the population move from the role of renter to homeowner. Ultimately that is the goal of both of them. A stimulated real estate economy means a healthy boost to the rest of the economy, and when more people own their homes the neighborhoods tend to stay family friendly for a longer period of time. In addition to their overall purpose, they are also similar in the fact that they do not give out loans. This is a mistake many people make, assuming that these loans are actually provided by federal government. They’re not. The loans offered through these programs are simply insured by the government. They are also required to follow a different set of guidelines than those acquired through alternative means. And a final similarity is that both of these agencies are far more willing to work with financially struggling buyers than most conventional lending professionals.

There you have the answer to the HUD FHA conundrum. Bear in mind that this is in no way an in depth analysis on either agency. Each agency is very extensive and has a long list of rules, regulations, requirements, and guidelines that make up the overall structure of the program. Most of that information is only needed by loan officers, real estate agents, and loan lenders because they need to know what requirements must be met before a loan can be approved. As a homeowner you will want to know the basics, but all of the fine print can be left to the team of professionals you have hired to help you find your home.

For more information regarding FHA click here.

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