The FHA Mortgage Loan Program actually helps homeowners
October 13th, 2008
The Federal Housing Administration (FHA) was created to help make buying a home more affordable and also to open up the housing market to a much larger buying pool. Many people think that the FHA lends the money directly to the consumer, but in actuality the money is lent by a bank or broker, and then FHA insures the lender against loss.
Bank of America, as well as most of the major and smaller banks, lend money through the FHA program to perspective homeowners nationwide. This program was the most popular lending program when I got into the business in 1983 and a large percentage of the mortgages made today are guaranteed by FHA.
The FHA loan has many advantages:
-The minimum down payment is 3.50% of the sales price currently up to a maximum of $729,900. However, current legislation will cut that to $625,000 Jan. 1st, 2009 unless something changes on the legislative front.
- The funds for the down payment may be a gift from a related third party. This has really helped many graduating college students buy a home rather than rent.
- FHA also allows for related parties to cosign (co-guarantee) a loan in order to bring the income qualifying ratios within line, and allow a person who otherwise may not qualify on their own to obtain a mortgage. This is the only loan program I know of that provides this option.
- The FHA required minimum credit score varies from bank to bank, but it is much more forgiving as compared to any conventional loan. For example, Bank of America requires a minimum credit score of 560 for FHA loans and 680 for conventional loans.
-You are eligible for an FHA loan even if you are a permanent resident alien. U.S. citizenship is not required.
-FHA loans are available to purchase a single family home, townhouse, or an FHA approved condominium.
-The FHA loan is assumable by a qualified purchaser. Back in the 1980’s this was a huge advantage to people selling their homes, when they were accompanied by an 8.0% FHA mortgage that was assumable, to a buyer of their property in an environment when the rates were as high 14%. I believe this will again prove to be a huge advantage in the future as rates rise from these historic lows.
-The interest rates are very attractive. Today’s rates on 30 year fixed are 6.25% (always subject to change). An adjustable rate mortgage with a slightly lower rate is also available at your option.
-The seller can opt to pay up to 6.0% of the sales price towards closing costs and pre-paids or escrows (excluding the down payment). This affords the buyer the option of only having to come up with the 3.50% minimum down payment as long as the seller has agreed to contribute the maximum toward closing costs.
I have done many FHA loans in my life and most of the people that I have helped with these mortgages have ended up as very happy homeowners. With all the misinformation in the today’s market regarding the lack of mortgage programs with less than 20% down, the FHA mortgage program in many cases can be viewed as the vehicle of choice.
Let’s thank the government for spending our money wisely on this program given it has stood the test of time and has proven to actually benefits homeowners.
Eric Steinkraus, Guest Blogger
Eric.p.steinkraus@bankofamerica.com
