Responding to the bursting of the housing bubble that happened in the last quarter of 2007 and which continues to be today, the FHA (the Federal Housing Administration) has eased off on some of its loan-approval guidelines and raised many restrictions on loan amount maximums.
The FHA changes were passed by a vote of 93 to 1, with 6 abstentions, in the U.S. Senate, demonstrating the government's awareness that the ultimate American dream of private home ownership is still one of the nation's most important issues. FHA loan maximums are determined by each state and county. Some counties have seen maximum FHA loan limits increase by as much as $200,000.
Established in 1934 to, the FHA guidelines are unique in that they permit a borrower to borrow up to 97% of the value of the home. What's more, the minimum 3% down payment requirement can be in the form of a gift or a grant; for these reasons, FHA loan programs are popular with first-time home buyers who may lack cash reserves.
FHA loan interest rates are typically about 1/2 of one percentage point higher than a corresponding loan amount offered by other government-insured housing lenders such as Fannie Mae (FNMA). However, this marginally higher interest rate is offset by the benefit of needing only a small amount of money down.
It should be kept in mind that under an FHA program, while the seller is allowed to contribute up to 6% of the total buying price, the 3% down payment cannot come from either the seller or the lender.
According to the FHA Mortgage Center, "After the fallout of the subprime and Alt-A loan market in 2007, FHA loans have received a new shot of energy throughout the housing market. Lenders, realtors, politicians, and investors have all issued statements championing the return of the FHA Home Loan Program to its rightful place in helping Americans purchase their homes. FHA modernization is currently under way and the Expanding American Homeownership Act of 2007 promises to re-ignite the industry."
FHA is also an ideal program for many Americans to use if they need to refinance their current mortgage to much needed equity cash-out in the wake of the bursting housing bubble and rising food and energy prices.
FHA allows homeowners to borrow 95% of their home's value to pull cash out which can be used to consolidate debts. FHA loans come with very attractive fixed interest rates as well as the security of federal government's insurance of the loan for the lender. Consult a mortgage broker or an advanced mortgage calculator to find out if you can use an FHA loan to secure your financial future.
