FHA Loans - FHA Loans Are Popular with
First-Time Home Buyers
FHA Loans
Carry Many Benefits for Home Buying or
Refinancing
By Elizabeth
Weintraub,
About.com
FHA
loans are becoming popular again! It's an institution that has
been around for a long time, since June 27, 1934. The
Department of Housing & Urban Development folded the
Federal Housing Administration (FHA) under its umbrella in
1965.
FHA loans began to lose favor
in the late 1990s, when home values began to inch upwards,
surpassing FHA mortgage limits, and sellers balked at FHA's
stringent appraisal guidelines.
How FHA Loans Work
Now, FHA does not make loans or
guarantee loans. It insures loans. The insurance removes or
minimizes the default risk lenders face when buyers put down
less than 20 percent. Without further approval from FHA, its
approved lenders are authorized to:
- Take loan
applications
- Process loan
applications
- Underwrite
andclose the
loan
FHA Mortgage Limits
My parents bought our first home
in 1955 for $9,000 with an FHA loan. It's almost inconceivable
to think of a home costing that today. As a result, FHA
periodically changes its mortgage limits. As of January 1,
2009, the maximum mortgage limit in high-cost areas is 115% of
local median prices, not to exceed $625,500. The maximum
conforming loan limit is $417,000 for single-family residences
nationwide. Your area could support a lower mortgage limit.
Here is how to find your FHA mortgage limit.
Blemished Credit
History
If your credit is less than
perfect, FHA might be the loan for you. You may qualify for an
FHA loan even though you have had financial
problems.
- FICO score
scan be lower than
those for a conventional loan.
- Bankruptcy. You can obtain
an FHA loan two to three years from the date of your
bankruptcy discharge, as long as you've maintained good
credit since your debts were discharged.
- Foreclosure. If you keep
your credit in excellent shape since a foreclosure, an FHA
loan will be available to you two to three years from the
final date of your
foreclosure.
Competitive Rates &
Terms
Today's terms are pretty
straightforward. In fact, in many markets the rates and terms
are better than those for 80% /
20% piggyback
loans.
- There is little or no
adjustment to the interest rate for an FHA loan, as the
rates vary within .125 percent of a conventional
loan.
- Mortgage insurance is
funded into the loan, meaning a premium of 1.5% is added to
the loan balance instead of being paid out-of-pocket. In
addition, a small portion for the mortgage insurance
premium is added to the monthly payment, but it is far less
than private mortgage insurance
premiums.
- As of January 1, 2009,
Borrowers can finance 96.5% of the purchase price and put
down 3.5 percent. In some instances, when combined with
other types of loans, the down payment can be
zero.
- Allowable debt ratios arehigher than the debt-ratio limits imposed
for conventional loans.
Fewer Required
Repairs
At one point, FHA repair demands
were so excessive that sellers would discount the list price to
buyers who would agree to obtain conventional loans over FHA
loans. Today the requirements appear more
reasonable.
- Defective roofs that leak
still need to be replaced but an older roof does not
necessitate replacement if it doesn't
leak.
- Windows that stick upon
opening or have cracked panes do not require
replacement.
- FHA appraisals do not take
the place of a home inspection, never have. Buyers should
still obtain a professional home
inspection.
FHA loans are available to
anybody but are used most often by first-time home buyers and
low- to moderate-income buyers. However, there are no income
limit qualifications.
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