FHA Loans Offer Opportunity for Lower Income Families
Most people who purchase a home will do so by obtaining one of three different types of loans. These are known as Conventional loans (Freddie Mac and Fannie Mae), VA loans and FHA loans. FHA loans in particular allow Americans in lower income brackets to be able to purchase a home where the other two might not. FHA is an acronym for Federal Housing Administration. FHA loans are insured by the federal government and are provided by lenders that are approved to offer the product. They came about during the Great Depression when the rates of foreclosures were very high. This type of loan gave the lenders insurance and motivated them to make loans.
FHA loans require what is referred to as full documentation. This means that the buyer must be able to show all the documentation that supports their income. This will include tax returns, pay stub receipts and W2’s. In the past people were able to obtain FHA loans based upon stated income. This was great for self employed individuals who did not receive a regular type of W2 income. This option is no longer available. If you qualify and can show full disclosure then FHA loans have the advantage of no prepayment penalties, no balloon payments, less down payment required and they are fully amortized over a fifteen or thirty year period.
Typically, average FHA loans require approximately three percent as a down payment. This is more affordable compared to the ten to twenty percent that a conventional loan would require. Many people find that this is a great alternative to paying rent while gaining an asset and pride in ownership at the same time. There are cases where FHA loans have been offered at zero percent down. The thing to watch out for in this case is the closing costs. Sometimes the paperwork can be manipulated and the closing costs end up as much as the required down payment.
One of the greatest areas of misunderstanding about FHA loans is how they are funded. FHA loans are insured by the government but they are actually funded through various sources. Due to this fact it is very important that individuals shop around for their best rates and loan details. Each lender has their own set of guidelines, requirements and fees. They are competing for business just as any other type of service available. Comparing FHA loans from a minimum of two to three brokers should present a pretty good summary as to the best deal available.
A little over a year ago, FHA announced it would be increasing down payment requirements for some borrowers, and mortgage insurance premiums for all in an effort to mitigate the risk associated with the vast numbers of loans it has guaranteed over the past six years.
The FHA is basically broke. Doing small loans will help mitigate that risk going forward: According to a new study released by the George Washington School of Business, the FHA needs to return to smaller balance loans, moving away from the riskier role it took following the housing market crash.
The report, titled “FHA Assessment Report: The Role and Reform of the Federal Housing Administration in a Recovering U.S. Housing Market,” recommends that the government lender revert to its traditional role of helping first-time home buyers, low to moderate income home buyers, and minorities purchase homes.
Key Findings From the Report:
In 2006, FHA could insure loans of up to $362,790
Today, in response to the 2008 housing crisis, FHA loan limits have been revised to insure loans of up to $729,750
Congress has extended these pre-crash limits through 2011 (even though the average home value in the U.S. is $175, 200)
Ninety-five percent of African-American and Hispanic borrowers selecting FHA mortgages borrowed less than $300,000. Loan limits beyond this size are not reaching as many FHA minority borrowers as they are intended.
The 2008 expansion of FHA’s loan limits gives it the ability to insure nearly 90 percent of the available low down payment market.
This report is the first installment of CREUA’s “FHA Assessment Report,” aimed at analyzing FHA reforms. For more information, visit: http://business.gwu.edu/creua/.
FHA Loans for Albuquerque Home Buying
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