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Why FHA Financing Is Best for 2009

by Peter G. Miller
January 7th, 2009

As we start 2009 the year-ahead hardly looks promising in terms of economics and finance. The country, according to the Los Angeles Times, may well have committed as much as $8.5 trillion to clean up the financial mess, a huge sum of money which will eliminate the ability of the federal government to do many of the things which a government should be doing.

In the midst of rising unemployment, vast problems on Wall Street and what is plainly a worldwide recession allow me to offer a bit of good news: The fixed-rate FHA mortgage program remains the best financial alternative for just about anyone considering the purchase or refinancing of real estate.

Why is the FHA program so good?

First, you can get a fixed-rate loan at a decent rate. This is very important because unprecedented government spending and balance-of-payments deficits could cause inflation and the devaluation of the dollar — bad news for those with adjustable-rate loans. If inflation becomes an issue loan rates and monthly payments will soar for ARM borrowers.

Second, there is no prepayment penalty or other funny business.

Third, HUD, to its credit, tries to help FHA borrowers who run into hard times.

Fourth, the application process is very clear: You have to provide paperwork and verifications, the way loans should always be underwritten.

Fifth, you can buy with 3.5 percent down.

I bring this up because in the midst of financial chaos an FHA loan makes a lot of sense. Such loans have made sense for a long time, they were surely a better deal than the “affordability” loan products offered during the past few years.

But the truth is that FHA loan production fell when option ARMs and interest-only loans became widely available. FHA numbers dropped when lots of borrowers could use a stated-income loan application to get a mortgage, an application which required an income estimate (guess) and not much more.
The lure of low initial monthly payments and bigger loans was just too attractive for many people to pass up.

Now we see what happened to people who got suckered with silky loan products which did not work and could not work for large numbers of borrowers. Their stuff is on the street — and so are they.

If you’re looking for a real estate loan there are three reasonable choices today: fixed rate FHA loans, fixed-rate VA financing and fixed rate conventional mortgages. Try anything else and you have my best wishes.

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This entry was posted on Wednesday, January 7th, 2009 at 5:07 am and is filed under . You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

One Response to “Why FHA Financing Is Best for 2009”

  1. Anna Says:

    We are getting an FHA loan. We have been waiting for four months. We have sent them everything we have and verified everything.

    They required fixing Section 1 and a reappraisal. But the broker won’t tell us whether the appraisal after the repairs resolved section 1 concerns (which was the demand of the investor). They also won’t tell us that they sent the new appraisal to the investor.

    Should we be worried? What kind of duty do they have to us?

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