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FHA Guidelines Help Borrowers Take Advantage of Low Rates

by Karen Lawson
December 3rd, 2009

The combined benefits of low mortgage rates, lower home prices, and the first tme buyer tax credit program can seem out of reach to borrowers with little cash or home equity. FHA guidelines can help provide flexible home financing terms.

As mortgage rates continue to fall, first-time buyers and homeowners with little equity who wish to refinance can benefit in several ways.

  • Low down payment and/or home equity: FHA loans don’t require high down payments or home equity: You may qualify for an FHA mortgage with as little as a 3.5% down; straight rate-reduction refinance mortgages are available with 3.5% equity. For cash-out refinancing, FHA can approve up to 85% loan-to-value refinancing. Conventional mortgage lenders typically refinance no more than 80% LTV and charge extra for cash-out refinances.
  • Closing costs: Coming up with a 20% down payment plus closing costs can price borrowers out of the home loan market, but FHA offers several options for handling closing costs. You can choose the traditional method of paying closing costs in cash up front, or you can roll closing costs into your new mortgage or refinance loan. If you’re buying a home, you can have sellers pay allowable closing costs on your behalf. Finally, your FHA-approved lender can pay approved closing costs in exchange for you accepting a higher mortgage rate.
  • Already Have an FHA Loan? Refinance with Streamline Refinancing: FHA offers homeowners with existing FHA loans the opportunity to refinance to today’s low rates through its streamline refinance program. Current FHA borrowers may qualify to refinance up to 125 percent of their home’s loan to value ratio. This can be a tremendous help to homeowners who want to refinance to lower interest rates, but cannot due to diminished home value.
  • FHA Mortgages Backed by Uncle Sam: FHA is a branch of the US Department of Housing and Urban Development. It provides access to home ownership for low- to moderate-income families, and has recently become the premier source of home loans for first-time buyers. Through its FHA mortgage insurance program, HUD now insures about 5.5 million mortgages worth about $696 billion. The volume of FHA-insured home loans has increased to about four times the number of insured mortgages it held in 2006. FHA is proactive in assisting borrowers and mortgage lenders with preventing foreclosure and finding solutions to financial hardships that jeopardize home ownership.

Choosing an FHA mortgage means you’ll have the support of FHA programs for as long as you have an FHA home loan. Contact an FHA-approved lender to learn more about the benefits of FHA mortgages.

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