Getting an FHA loan used to be a person’s last choice when sales of homes were thriving. Prospective homebuyers didn’t want to go through all the documentation and sellers didn’t like the requirement by FHA for any needed repairs to be completed before closing.
Now that home prices have been declining, asking for a FHA loan has become routine. Mortgages insured by the Federal Housing Administration are enjoying a crowd pleasing comeback due to lenders making it difficult to be approved for conventional loans. People who have refinanced or bought a home this year using an FHA loan has increased over last year by well over 150 percent and refinances by almost four times as much. It is due in large part to the fact that the FHA only requires 3 percent down for buyers. For an existing homeowner, they only need to have at least 3% equity and be able to fully document their income. What’s more, a borrower can have not so good credit including a recent mortgage late.
FHA mortgage loans are originated by lenders, similar to other home loans, but are federally insured by the government. The typical conventional home loans are different because it needs insurance by private mortgage insurers when a borrower brings in less than 20 percent down. In addition, since minimum credit scores for class “A” loans, also called prime credit, have increased FHA has gained borrowers because there is no so-called minimum credit score for FHA. Although, people in the business know the threshold is closer to 560 credit scores. Nevertheless, FHA will qualify potential borrowers on their financial history, their current income and if they have sufficient income to cover their current and proposed new debt, a FHA mortgage.
Coming changes in FHA Loans
The federal housing rescue bill that passed legislation will raise the down payment by FHA borrowers beginning Oct. 1, to 3.5 percent from 3 percent. Buyers are not eligible to receive down payment assistance from nonprofits or sellers. Spokespersons for the FHA claim it is due to taking on more risk than they normally would. So, they would like to be compensated for the increased risk.
Plus, the FHA will increase its fees on Oct. 1. The majority of borrowers will pay upfront 1.75 percent mortgage insurance premiums based on the loan amount versus the normal 1.5 percent along with yearly premiums of 0.55 percent versus 0.50 percent.
Frank Collins is an avid investor in real estate and contributor to FHA Jumbo Mortgages and
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