FHA Mortgages are Making a Comeback

FHA Mortgages are Making a Comeback

The mortgage credit crunch may have a savior in FHA loans.  FHA’s mission is to provide safe, affordable mortgage loans to buyers to help the housing market recover from its recent setbacks.  FHA loan guidelines, once considered restrictive in the marketplace, are now proving to be an affordable alternative to the tightening credit guidelines of conventional mortgages offered by Fannie Mae and Freddie Mac.  FHA’s government-insured loans were largely ignored in the past 5 years in favor of low down payment or no down payment mortgages, sometimes called 80/20 or “piggyback” loans.   As the credit market tightened, most banks either eliminated these 100% financing programs, or greatly restricted the lending guidelines, in addition to raising the interest rates and private mortgage insurance premiums (PMI).  

FHA is aggressively trying to regain its place in the mortgage market with increased loan limits, low interest rates and lower monthly mortgage insurance premiums than conventional loans.  FHA announced higher loan amounts in March 2008, offering loans of up to $406,250 for the purchase of a single family home in Ulster County.  This makes FHA competitive with the conventional loan limits, which are currently $417,000.   Many of FHA’s guidelines now compare favorably with conventional loan programs.  For example, FHA borrowers can make a 3% down payment, as compared to the 5% down required by a conventional mortgage.  FHA also allows borrowers to negotiate up to a 6% seller concession toward a purchaser’s closing costs and prepaid items.  Fannie Mae and Freddie Mac loans usually limit a seller’s concession to 3% of the sales price.  The net result is that FHA loans allow a borrower to buy a home with less money put of pocket – very important to today’s buyers!   The key to FHA is to work with a loan officer who is experienced in navigating the program.  

 

FHA has had a reputation for having very stringent appraisal guidelines.  While FHA certainly wants the house to be in good condition, they have relaxed some of the appraisal requirements to fall more in line with conventional loan standards.  FHA still does have some hot-button items - for example, wells and septic fields must be at least 100 feet apart for a property to be eligible for FHA financing, and any peeling paint that might contain lead would usually need to be scraped and repainted.

 If a house needs repair work, a buyer can turn to an FHA 203K rehabilitation loan.  This type of mortgage allows a buyer to buy the house and finance in the cost of repairs or renovations.  A streamline 203K allows for up to $35,000 worth of repairs to be financed into the loan.  Anything above that amount would fall under the full 203K loan plan. 

 

Finally, FHA loans are currently being offered at interest rates that are the same as conventional loans – some banks actually have lower rates for FHA than conventional financing!   Increased loan amounts, lower interest rates and lower down payment requirements have made FHA a safe, affordable alternative for home buyers. 

 

 

Contact Information

Photo of Laurel Sweeney Real Estate
Laurel Sweeney
Berkshire Hathaway HomeServices Nutshell Realty
1209 State Route 213, PO Box 452
High Falls NY 12440
Office: 845-687-2200
Toll Free 877-468-5783
Fax: 845-687-4162

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