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FHA Loans are Back Again
March 31st, 2008 categories: Real Estate Finance
In the last several years, conventional financing has been phenomenal. Rates have been low and guidelines have been so flexible that for someone with a good FIFO score, stable income, and a little savings, FHA loans could not compete. In recent years, FHA loans were reserved for people who simply didn’t make the cut on cheaper, conventional financing.
As lenders continue to tighten guidelines, many people with good credit and income are finding that FHA loans may be their only option in today’s market. In fact, FHA loans offer the flexibility and high loan to values now missing from the new Fannie Mae/Freddie Mac guidelines.
The FHA is the Federal Housing Administration. Established in 1934, it became part of the HUD, the department of Housing and Urban Development, in 1965. The FHA provides mortgage insurance on loans made by FHA-approved lenders. It is the largest insurer of mortgages in the world. The FHA provides lenders with protection against losses as the result of homeowners failing to pay their mortgages, thereby offering lenders less risk when making loans.
FHA loans offer attractive rates and very flexible guidelines. FHA loans are not credit driven and allow “compensating factors” on loan applications to make up for other shortcomings. While rates are good, mortgage insurance premiums are high. At funding, there is a 1.5% insurance funding fee and an additional 0.5% mortgage insurance premium per month even on 30 year loans with less than an 80% loan to value. In fact, the FHA is able to collect enough insurance premiums to make it the only government agency that operates entirely from its self generated income at no cost to the tax payers.
However, while the insurance premiums can be expensive, the SELLER can pay the 1.5% funding fee as part of closing for the buyer. FHA loans still allow only 3% DOWN PAYMENT even in San Diego County. Even better, the SELLER can pay the 3% DOWN PAYMENT for the buyer making it once again possible to purchase a home in San Diego County with no down payment.
FHA loans offer unlimited cash-out on refinances, allow non-occupying co-borrowers, and non-owner occupied loans on both single family residences and two-to four unit properties. The new Fannie Mae/Freddie Mac guidelines will be in effect on April 1st and while the new conforming limits have increased, the new guidelines are significantly restricted making FHA once again a popular and often only alternative.
Lysa Catlin
CMC Finance, Inc.
(858) 456-3000
when the days of fha has sat on the back burner, they now sweep in and save the day for those needing a refinance and a great loan on a home. great post.
Thank you. And they charge 1.5% at funding to do so!