One result of such woeful housing news is that more and more people are turning to FHA mortgages. FHA was created when the federal banking system was restructured in 1934. The National Housing Act was passed and the legislation created the Federal Housing Administration (FHA) with the intent to regulate interest rates and mortgage terms on the loans that it insured. This was a result of the Great Depression in 1929 when millions of Americans began to lose their homes to foreclosure. Sound Familiar? Since 1934, the FHA and HUD have insured over 34 million mortgages.
When housing prices began to spiral upward in the 1990s, lenders developed mortgage products designed to help people buy homes that had suddenly been priced beyond their reach. FHA loans fell by the wayside when lenders sold these loans by offering 100% financing vs. the 3% required by FHA. As home prices continued to rise, the qualifications for loans were loosened and the result is the part of the mess we are in now with foreclosures etc. But this topic is a whole other blog….so back to FHA Loans.
Until this point FHA loan growth has been widely assumed, but now we have real numbers from the Office of the Chief Economist at Freddie Mac.
To get some perspective of what’s going on consider these figures from Freddie Mac:
2005 — Loans worth $$3.167 trillion were originated, including VA and FHA mortgages worth $90 billion (2.84 percent of the total marketplace).
2006 — Loans worth $2.858 trillion were originated. The value of VA and FHA loan originations dropped to $80 billion (2.80 percent).
2007 — Loans worth $2.312 trillion were originated while VA and FHA mortgage originations amounted to $120 billion (5.19 percent)
2008 — Loans worth $1.490 trillion were originated — less than half the 2006 total. As to FHA and VA loans, they rose to $291 billion (19.53 percent — almost seven times the 2005 percentage).
The projection for 2009 is even more telling: Freddie Mac estimates that home loans valued at $1.560 trillion will be originated — but that FHA and VA financing will amount to $440 billion (28.21 percent).
What these numbers tell us is that both lenders and borrowers are running from so-called “non-traditional” loan products as quickly as they can and turning instead to mortgage programs which are reasonable and reliable.
If you are considering a home purchase in the near future remember knowledge is power. Don’t fall for these myths about FHA loans.
MYTH #1: FHA is only available to First Time Buyers. NOT TRUE!
- FHA Loans are available to home buyers whether it is their first, second or fifth home purchase. The truth behind this is you can only have 1 FHA loan at a time. Also, you are able to have a co-signer on an FHA loan. Only one borrower needs to be an occupant.
MYTH #2: FHA Loans are more difficult to obtain. They are a painful process and require more paperwork and special inspections. NOT TRUE!
- FHA Loans require a different set of paperwork for lenders but not necessarily more paperwork. Also, there are no “special inspections” required. HUD requires an appraisal to be made which is common with home loans.
In conjunction with the appraisal, the appraiser will inspect the home for serious issues that need repair and may require the issues to be remedied. Some of the things your FHA appraiser will look for are…
- Missing floor covering, fixtures, outlet covers, and/or exterior siding
- Rotten wood
- Defective lead based paint if built prior to 1978, chipping or peeling
- Dysfunctional windows. (not opening or closing/ broken glass)
- No bars allowed on windows without a safety latch to open
- Roof with less than 2 years of economic life
- Roof with missing or damaged shingles
- Crawl space must be at least 18 inches
- No water or debris in the crawl space
- Attic must have insulation and access if there is an attic
- HVAC & plumbing & electrical must function properly
- Electric garage door must have a reverse stop
- Garage must have drywall on any wall adjacent to living areas
- Any safety and security issues
MYTH #3: FHA Loans are impossible to qualify for. NOT TRUE!
- If you are considering a home purchase ask yourself the following questions.
1. Do you have steady employment?
2. Do you have excessive debt: if so, you may not qualify if your debt is too high compared to the amount of money you are bringing in each month.
3. Do you have a down payment: Down payment amounts are much lower for FHA loans, but some money to put down is necessary. Currently FHA requires a 3.5% down payment. In Oklahoma you may qualify for down payment assistance with Community Action. Also, FHA allows the down payment to be a gift from family.
4. Do you have good credit or better: Those with very low credit scores may not qualify for a home loan right now. If your credit score is below 580 it may be more difficult to obtain a home loan.
MYTH #4: FHA Loans are only for small loan amounts. NOT TRUE!
- In Oklahoma the FHA Loan limit is $271,050. Currently the average home price is about $145,000 in OKC. As you can see this limit is well above the average home price.
If you have questions on FHA loans please contact me and I will put you in touch with a qualified FHA loan officer. Only a few Mortgage brokers are actually FHA approved. Today I spoke with a lender at Canadian State Bank who said they had a new loan program offering FHA rates at 5% while other banks were still offering 5.5%.
It just goes to show the right Lender along with the right Realtor
can make all the difference in guiding you through your biggest investment!
In October, HUD released an audit that showed their capital reserves had fallen below the Congressionally-mandated level of 2%. In response, FHA announced a number of changes to the program to strengthen its financial position.
