FHA Mortgages Facilitate Home Ownership
The Federal Housing Administration (FHA) program first began in 1934 in an effort to encourage home ownership despite the difficult economic times of the era. The program enables consumers who may not qualify for a standard loan to obtain the financing they need to purchase a home without income limitations.
A Florida FHA Mortgage differs from typical loans in that they are insured by the Federal Housing Administration, which is a part of the Department of Housing and Urban Development (HUD). Because this insurance reduces the lender's risk on the loan, lenders have greater flexibility with regard to approving loans. For example, FHA Mortgages are not credit-score driven, so a client may be able to obtain a loan despite having had credit problems or even a bankruptcy in the past. Alternatively, if a consumer does not have a traditional credit history, it is still possible to obtain financing by documenting payment histories on items such as rent and utilities.
FHA Mortgages also provide added flexibility when it comes to closing costs and the down payment. Many of the closing costs can be incorporated into the loan, and a down payment of 3.5% of the purchase price is required. The down payment may be obtained as a gift from a family member or through a down-payment assistance program. FHA Mortgages are processed just like any other loan, and they provide a wonderful opportunity for consumers who are seeking to achieve home ownership!
The Advantages of FHA Mortgages
In many regions of the US such as Florida, FHA Mortgages have not been utilized for years, so a lot of real estate agents and mortgage originators aren't familiar with this great resource. The following are a just a few of the recent changes that have made FHA Mortgages a more attractive option again for some consumers looking to buy a new home or refinance an existing one:
1) Congress passed the Stimulus Act of 2008. During the recent housing boom, home values surpassed FHA Mortgage limits in many regions of the US. The recent enactment of this important legislation, however, increased FHA Mortgage limits up to $729,500 in many high-cost regions of the US through the end of the year. FHA Home Mortgage Loans limits vary by county, so give us a call for loan limits in your area.
2) The FHA changed its appraisal and fee negotiating guidelines. In the past, many sellers steered clear of FHA Mortgages because the appraisals were too strict and certain fees were non-negotiable. The FHA has greatly loosened these guidelines to make it easier for both buyers and sellers.
3) FHA Mortgages are much cheaper now. Because FHA Home Mortgage Loans are federally insured, they tend to trade at a higher premium in the secondary market. This means lenders can often charge a lower rate.
Other FHA Benefits:
1) FHA Mortgages are typically not credit-score driven. Borrowers usually can have a lower score than with other products and still qualify for a good rate.
2) FHA Mortgages require as little as 3.5% down, and allows a) Sellers to finance up to 6% of the buyer's costs to close; b) Homeowners to take cash out up to 95% of the home's value; and c) Homeowners to consolidate first and second mortgages up to 97% of the home's value.
3) FHA Mortgages allow down-payment assistance programs that are not seller-funded. *It is important to note that there are 22 ways in which FHA allows the funds for buyer contribution, including relative gifts and loans.
4) FHA Mortgages allow non-occupying co-signers (i.e., mom/dad) to co-sign on the mortgage, even if the occupying signer (i.e. son/daughter) has no income. Note that specific restrictions apply.
FHA is Back and Better than Ever
Federal Housing Administration home mortgages (FHA) have become an extremely popular choice recently for Americans looking to buy a new home, or refinance an existing home. In fact, according to the FHA, the total volume of FHA loans has reportedly tripled in the last year alone – but why? In recent years, the FHA has made some important policy changes in order to be more competitive. These changes, along with the effects of the subprime collapse and the subsequent credit crunch on the mortgage and financial markets, have combined to make FHA a valuable option for many Americans, especially first-time home buyers, borrowers with less-than-perfect credit, and borrowers with adjustable rate mortgages. In this article, we'll discuss four specific changes that have turned the tide for FHA loans, and why you might want to take a closer look at this valuable option when you're buying or refinancing a home. But first, let's examine why FHA loans fell out of favor in the first place.
Since 1934, the FHA has helped some 34 million Americans become homeowners. In 1965, the FHA became part of the Department of Housing and Urban Development (HUD) and would go on to become the largest insurer of mortgages in the world. By 2001, the FHA simply could not compete as a proliferation of exotic and subprime mortgage products and easy access to credit helped homeownership levels in America jump to record levels as the housing boom was in full swing. It wasn't until late 2006 that the FHA began reviewing and changing its policies in any meaningful way – just in time for the subprime market collapse and the turn in the real estate market.
Congress passed the Stimulus Act of 2008, which did more than just provide rebate checks. It also temporarily increased FHA loan limits in many regions of the U.S. And with that, FHA loans were back in business. But what about those other policies that made FHA loans less attractive in the past? Well, the FHA drastically changed its appraisal and fee negotiating policies, making it much more competitive, and much better for both buyers and sellers. The FHA also made other changes that allowed 1) sellers to finance all of the buyer's costs to close, 2) homeowners to take cash out up to 95% of the home's value, and 3) homeowners to consolidate a 1st and 2nd loan up to 97% of the home's value. Because of these and other features, FHA loans in many cases are actually a little bit cheaper for the borrower. Also, because FHA loans are federally insured, they tend to trade at a higher premium in the secondary market, and consequently, lenders can often charge a lower rate. Most importantly, FHA loans are not FICO-score driven. Borrowers can have a lower score than other products and still qualify for a good rate. FHA loans also require as little as 3.5% down and, at the time that this article is being written, FHA loans allow down payment assistance programs, which allow the seller to cover the buyer's down payment and closing costs. This means borrowers, especially first-time buyers, or move-up buyers with limited funds, have a real opportunity to get into a home with little or no cash at closing. For sellers, this means you can offer concessions that make marketing your home much more attractive without having to lower the price of your home again. In many regions of the U.S., FHA loans have not been utilized for years, so a lot of real estate agents and mortgage originators aren't familiar with this great resource. But, if you or someone you know is thinking about buying or refinancing a home, don't miss out on this temporary opportunity. Give us a call at Florida Mortgage Specialists and we'll provide a credit review and see if an FHA Home Mortgage Loan is right for your financial goals and needs.