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FHA Loans Provide Home Financing for “Unconventional” Borrowers

by Karen Lawson
October 29th, 2009

In a recent column for the Seattle Times, writer Froma Harrop questions FHA loan guidelines including low down payments and lending to borrowers with bad credit. Ms. Harrop cites a case involving a Colorado borrower who had met FHA’s minimum down payment requirement of 3.5% and who qualified for a home loan with blemished credit including a “recent” bankruptcy and home foreclosure. Harrop asserts,”No sane private lender would take such a risk without a sucker of first resort, again the taxpayer.” But where does that leave people/taxpayers facing financial problems through no fault of their own?

FHA Loan Guidelines Provide Opportunity During Tough Times

Protecting the interest of taxpayers is essential, but is limiting access to home ownership to all but those with 20% and “excellent” credit a reasonable solution? More importantly, what happens to the US housing market if FHA stops making home loans available to borrowers with moderate income and challenged credit? Home prices in many areas of the US average well into six figures, and 20% down is an unattainable amount for many hardworking families. FHA lending guidelines do allow borrowers to have a foreclosure (three years or more prior to applying for an FHA loan) and/or a bankruptcy that occurred a minimum of two years prior to applying. Whether or not two or three years is accurately deemed “recent” doesn’t matter in light of “recent” economic challenges. Plenty of suburbanites ensconced in “good” neighborhoods have seen their 20% down payments disappear along with any additional home equity they had accumulated. Financial security and home ownership itself have gone the way of the passenger pigeon for many.

Refinance Challenge: Low Mortgage Rates, and Blemished Credit

Meanwhile, mortgage rates have dipped to near historic lows, and many people are stuck with high mortgage rates that they can’t refinance due to having little or no home equity. Let’s not forget the layoffs that have cost many “qualified” homeowners their jobs. Homeowners who have neither missed a payment on anything nor carried revolving debt are finding themselves in financial trouble. Formerly pristine credit ratings are looking a bit tattered these days. Refinancing their mortgage loans could help many of these people, but what if they don’t have a solid employment history, or have missed a couple of payments on credit cards, or even missed a mortgage payment? Formerly accommodating conventional lenders can’t help these folks. Getting an FHA refinance may be their only option at competitive mortgage rates.

Let’s recognize that FHA is helping many taxpayers; FHA loans and lenient FHA loan guidelines are providing essential opportunities for home buyers and homeowners who want to buy and/or keep a home for their families.

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This entry was posted on Thursday, October 29th, 2009 at 6:16 pm 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 “FHA Loans Provide Home Financing for “Unconventional” Borrowers”

  1. Dave Says:

    The actual loan mentioned from Colorado was a purchase transaction originated by Cherry Creek Mortgage. The fico was over 700 and, per the article, after paying her mortgage she had used half of her “take home pay” and was left with 1200. That is a net income comparison. Loans are underwritted using gross income. I calculate that her income and this payment produced about a 38% ratio.

    She has good credit, good ratios, and purchased a home that was completely in need of repair, which she has done, so she also improved the community.

    Fact is, this loan would have been done again unde those terms and should have been.

    Nowhere in the NYT article did it say she had bad credit, which she did not.

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