Final answer:
When a home is purchased with an FHA loan, the builder is required to provide a builder-backed home warranty. This warranty ensures the builder will repair any problems or defects that appear in the home within a specified period of time. The FHA stemmed from New Deal policies in the 1930s and has evolved to facilitate wider homeownership.
Step-by-step explanation:
When a buyer finances a newly built home with a Federal Housing Administration loan, FHA requires the builder to provide a builder-backed home warranty. This type of warranty is a pledge by the builder to fix any problems or defects in the newly built home, often covering material and workmanship for a specific time period, usually one year.
This safety measure is taken to protect the buyer in case of any construction inconsistencies or defects that may arise after the purchase of the house. It develops trust between the buyer and the builder, as the builder is assuring a certain standard of construction. Such a warranty or service contract is generally seen with large purchases like homes, cars, or appliances.
Looking at the history of the FHA, it was instituted in 1934 as part of President Franklin D. Roosevelt's New Deal in response to the banking instability which led to the Great Depression. The FHA aimed at encouraging banks to lend to homebuyers while ensuring that housing was built to new safety standards. Later, its role expanded to facilitate homeownership for WWII veterans and to address racial disparities in housing.
Learn more about FHA loans