I get this question a lot in coaching and here is an easy to understand breakdown of what you need to know:
The Department of Housing and Urban Development (HUD) promotes homeownership among families in all income brackets. As a part of its core mission, HUD insures mortgage loans for families with poor credit or financial struggles, giving mortgage lenders an incentive to extend loans to borrowers with high default risks. As a type of subprime mortgage loan, HUD loans carry a unique set of advantages and disadvantages to borrowers, lenders, the government and society as a whole.
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Significance
HUD loans serve a vital public service. By insuring high-risk mortgages, HUD gives a boost to homeownership rates across the country. Owning a home is an integral piece of the American dream, allowing families the ability to put down roots in a place they can call their own. Obtaining a mortgage loan can be challenging for individuals who have recently undergone a bankruptcy or defaulted on any type of debt. HUD loans are designed for people who are committed to financial responsibility and restoring their financial reputation.
Federal Housing Administration (FHA)
The Federal Housing Administration is the branch of HUD that insures HUD loans. HUD itself engages in a much wider range of activities, with individual branches set up for specific purposes. According to HUD.gov, the FHA has insured over 37 million mortgages to date.
Considerations
Since HUD loans are generally extended to subprime borrowers, the risk of default is higher than for traditional, uninsured mortgages. Mortgage default has negative effects on borrowers and the public at large. Borrowers in default run the risk of losing their homes and finding themselves needing housing in a short time frame. This can often present a serious problem, since mortgage defaults usually occur at a time when the family cannot afford to make a down payment on another home or rental property. HUD loans are insured by federal funds, meaning that the American people must pay mortgage lenders in the case of default. This serves to raise government spending, which has a ripple effect on tax rates.
Benefits
Despite the risks, HUD loans carry significant benefits for all parties. Banks benefit by tapping into a market they would otherwise shy away from. Insured loans allow banks to reap additional profits with little or no risk. The government benefits by an increase in the property tax base. New home expenditures, such as appliances, furniture, security systems and lawn care products, rise in response to increased homeownership as well, giving a boost to a range of industries. Homeowners benefit by being able to raise their families in a safe and secure environment while working to improve their finances.
Potential. HUD Info
HUD has the ability to offer its own mortgage loans in times of economic distress. According to Bloomberg.com, for example, HUD offered $1 million in interest-free loans to homeowners running the risk of foreclosure in 2010 as a part of the Emergency Homeowners Loan Program. These interest-free loans allow HUD to bypass banks altogether, offering assistance directly to the public.
I get this question a lot in coaching and here is an easy to understand breakdown of what you need to know:
The Department of Housing and Urban Development (HUD) promotes homeownership among families in all income brackets. As a part of its core mission, HUD insures mortgage loans for families with poor credit or financial struggles, giving mortgage lenders an incentive to extend loans to borrowers with high default risks. As a type of subprime mortgage loan, HUD loans carry a unique set of advantages and disadvantages to borrowers, lenders, the government and society as a whole.
Sponsored Link
Discover® FHA Mortgages
Discover® Home Loans Official Site. Lock In Your Rate Now. Learn More.
www.discover.com/home-loans
Significance
HUD loans serve a vital public service. By insuring high-risk mortgages, HUD gives a boost to homeownership rates across the country. Owning a home is an integral piece of the American dream, allowing families the ability to put down roots in a place they can call their own. Obtaining a mortgage loan can be challenging for individuals who have recently undergone a bankruptcy or defaulted on any type of debt. HUD loans are designed for people who are committed to financial responsibility and restoring their financial reputation.
Federal Housing Administration (FHA)
The Federal Housing Administration is the branch of HUD that insures HUD loans. HUD itself engages in a much wider range of activities, with individual branches set up for specific purposes. According to HUD.gov, the FHA has insured over 37 million mortgages to date.
Considerations
Since HUD loans are generally extended to subprime borrowers, the risk of default is higher than for traditional, uninsured mortgages. Mortgage default has negative effects on borrowers and the public at large. Borrowers in default run the risk of losing their homes and finding themselves needing housing in a short time frame. This can often present a serious problem, since mortgage defaults usually occur at a time when the family cannot afford to make a down payment on another home or rental property. HUD loans are insured by federal funds, meaning that the American people must pay mortgage lenders in the case of default. This serves to raise government spending, which has a ripple effect on tax rates.
Benefits
Despite the risks, HUD loans carry significant benefits for all parties. Banks benefit by tapping into a market they would otherwise shy away from. Insured loans allow banks to reap additional profits with little or no risk. The government benefits by an increase in the property tax base. New home expenditures, such as appliances, furniture, security systems and lawn care products, rise in response to increased homeownership as well, giving a boost to a range of industries. Homeowners benefit by being able to raise their families in a safe and secure environment while working to improve their finances.
Potential. HUD Info
HUD has the ability to offer its own mortgage loans in times of economic distress. According to Bloomberg.com, for example, HUD offered $1 million in interest-free loans to homeowners running the risk of foreclosure in 2010 as a part of the Emergency Homeowners Loan Program. These interest-free loans allow HUD to bypass banks altogether, offering assistance directly to the public.