FHA - The Forgotten Loan

by Mikey and Steven Hall

This article is intended to be a general discussion only and is not intended to, and does not give, financial advice or render financial opinions. The references contained herein were dated the moment they were written down. All sources listed must be confirmed by means of the opinions of the appropriate professionals and any liability that might arise from your use or reliance on this article or any of its links is expressly disclaimed.

Background

In 1934 housing in America was a decimated industry. Nearly two million jobs had been lost in the construction industry and lenders were so guarded home mortgages required a 50% down and were written only for short terms of three to five years. Home ownership was quickly becoming a lost dream with only four out of ten households actually owning a home. The majority of Americans were renters.

In response, Congress created the Federal Housing Administration or FHA to insure loans made by FHA-approved lenders on single family and multifamily homes. The idea was to bring a measure of stability to the mortgage industry by removing the risk of making home loans. The FHA pays the lender in the event of a homeowner's default. To qualify, the loans must meet certain requirements established by the FHA. Eventually the FHA would become the largest mortgage insurer in the world.

The FHA program helped finance home for veterans and their families after World War II and for the next thirty years it helped support the construction of millions of apartment units. In 1965, the FHA was made a part of the Department of Housing and Urban Development or HUD. FHA emergency financing helped save thousands of private apartment buildings during the inflationary spiral of the 1970s.

"The FHA again played a part in steadying prices during the recession of the 1980s. By the third quarter of 2001, the nation's home ownership rate had soared to an all time high of 68.1 percent. The FHA and HUD have insured over 34 million home mortgages and 47,205 multifamily project mortgages since 1934. And, the FHA currently has 4.8 million insured single family mortgages and 13,000 insured multifamily projects in its portfolio."

How The FHA Is Funded

The FHA's funding comes entirely from its own self-generated income and does not require taxpayer money. "The proceeds from the mortgage insurance paid by the homeowners are captured in an account that is used to operate the program entirely. The FHA provides a huge economic stimulation to the country in the form of home and community development, which trickles down to local communities in the form of jobs, building suppliers, tax bases, schools, and other forms of revenue."

The New FHA Loan

The FHA loan program has be updated to serve today's real estate market it's advantages include the following:

* The maximum loan amount is now $729,250.00. This makes it an effective tool in today's high priced market.

* The loans offer competitive rates for 30 year fixed rate loans. This type of loan is a stable form of lending with clear understandable costs.

* The down payment can range as little as 3% (which can even be a gift to the buyer) for loan balances up to $417,000, to 5% for loan amounts over $417,000 and up to $729,250.

* Minimum FICO scores are not required. The FHA can use alternate credit to qualify you. Examples might include records of payments on utilities, cell phones, rent etc. All you need to show is that these payments were made on time during the previous 12 months.

* The seller can pay up to 6% of the buyers closing costs. This can be very useful in buyers' markets where sellers are motivated to make a deal.

* Family members can co-sign to help the borrower qualify.

* You do not have to be a first time homebuyer to qualify. This means that FHA loans may be a good option for those who need to refinance their home.

* The buyer is not required to maintain a cash reserve except on three and four unit properties.

* You can even have had a bankruptcy in the last three years, as long as the bankruptcy has been discharged for at least two years and you have re-established credit.

* All court ordered judgments must be paid off.

* Mortgage insurance is, of course, required however it is only one half of one percent of the loan balance per year. An initial 1.5% premium payment can be made at the closing or added to the loan amount.

* There are no pre-payment penalities.

* American citizenship is not required.

* The property must be the buyer's primary residence (the buyer lives in the property).

* FHA loans are assumable. This may be become very important in later years when interest rates return to their higher levels.

If you think an FHA loan might be right for you, give your lender a call.

The information contained herein is deemed reliable, but must be independently verified.

Contact us if you are interested in looking at available property in South Orange County. mailto:AskMikeyHall@gmail.com