FHA Loans Gaining Popularity with Buyers, Homeowners

by Karen Lawson
September 24th, 2009

In the heyday of the real estate bubble, FHA loans accounted for about 3 percent of residential mortgage loans. Now, they’re about 15 percent of the market. The demise of sub prime lending, Tight credit standards, and cash challenged homebuyers and homeowners contribute to the recent surge in FHA mortgage loans.

FHA Mortgage Provides Flexible Guidelines

  • Low down payment: Conventional lenders rarely approve financing for homebuyers with less than a 10 percent down payment; FHA insures mortgage loans of up to 96.5 percent of home value. Borrowers should be aware that FHA loans come with a price in the form of mortgage insurance premiums. If you want to take advantage of current low mortgage rates, but don’t have enough cash to cover 10 percent down, an FHA mortgage loan can help.
  • No specific income requirements: If you’re self employed, work seasonally, or cannot otherwise qualify for conventional mortgage loans due to your income, an FHA loan may be the mortgage loan for you. FHA places no dollar limits on qualifying income, which means that you can potentially qualify with any amount of income as long as you can document your ability to make mortgage payments.
  • FHA loan limits accommodate many housing markets: FHA loan limits vary according to regional market conditions, with maximum loan limits ranging from $271,050 to $729,750.
  • Thorough appraisal requirements = homebuyer protection: Although FHA has loosened some standards for minor cosmetic repairs, its appraisal guidelines require sellers to make recommended repairs prior to closing. Although this can seem troublesome for homebuyers anxious to close, it can save money and help prevent home repairs later.
  • No income requirements (either high or low): Unlike convential lending requirements, FHA guidelines are based on a borrower’s ability to pay instead of arbitrary income requirements. There is no minimum or maximum income requirements for qualifying for an FHA mortgage. FHA lenders will verify income and employment.
  • Flexible guidelines for source of down payment: Your down payment may come from a family member or friend, your employer, or a government and/or non-profit agency. (State and local first time homebuyer programs may provide down payment assistance for first time buyers.) If any part of your down payment is financed, you’ll have to demonstrate the ability to make payments on your FHA mortgage and the down payment financing.

Assessing FHA Loan Cost

You may have heard that FHA loans are expensive; this is a criticism of the mortgage insurance premiums charged to borrowers. 1.75 percent of your mortgage loan amount is paid up front, with .50 percent of your mortgage balance paid each year for up to five years, and/or or until your loan to value ratio (LTV) reaches 78 percent of its appraised value. Conventional mortgage loans also require mortgage insurance and many require down payments of 10 percent of your home’s value. Don’t let affordable homeonwership slip by before home prices and mortgage rates start rising.

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