The Federal Housing Administration

The Federal Housing Administration (FHA) loan is a mortgage that is insured by qualified lenders. The purpose of the loan is to decrease lender risk and increase the housing market. FHA loans are for low income individuals with a credit score as low as five hundred. To maintain the loan the borrower must pay a yearly mortgage insurance to FHA to keep the loan. Let’s just say the borrower does not have a credit history, well with FHA the lender does not look at credit score alone but at other things for example rent payments. According to Investopedia with an FHA loan “the lower the credit score and lower the down payment, the higher the interest rate.” For the loan to be approved the borrower must have mortgage insurance. To be eligible for an FHA loan the borrower with a credit score of five hundred eighty or lower must make a down payment of ten percent or higher, the borrower must have proof of steady income and employment, and the home being refinanced or purchased is borrowers main placement (“FHA Loan Basics, 2018).
Apart of me feels like this is a catastrophe waiting to happen because what if the borrower backs out of the deal then do they potentially must pay the lender back all the money? I know it takes money to make money and investing in someone’s home could make someone a lot of money, but there should be more clearer rules on that. I would implement that both parties sign a non-disclosure agreement and if one party (doesn’t matter which) wanted to back out then instead of paying back all the money loaned (if the borrower backed out) then they would just pay a certain percentage and vice versa.