Why FHA loan usage has grown to be so popular

FHA loans have grown from about 2% of total loans to above 25% of loans today and it's not just first time home buyers and refinancers using them.

Loan limits are up, and even though the down payment has increased from 3% to 3.5% that's about the best a buyer can do unless they qualify for a USDA rural development 100% loan.  Part of this down payment can be a gift from a relative.   As opposed to conventional loans, FHA rates are not based on the borrower's credit score

And, in spite of new government regulations on appraisers, the lender can still pick the FHA appraiser.  In addition, the FHA appraisal guidelines are not as strict as those we were used to in that the focus has shifted from small, cosmetic items and normal wear and tear to the overall value of the home. 

As to closing costs, the seller can contribute up to 6% of the sales price toward the buyer's closing costs including prepaids and discount points which is a great help to the home buyer.

FHA also has the 203 (k) rehabilitation program that has been streamlined and is a great help if the homebuyer wants to purchase a foreclosed property or one that needs work or appliances.  There are two options here, the first for repairs up to $15,000 that is very simple and requires no further inspections.  The other allows for repairs up to $35,000 for repairs or improvements.

As is true in all lending situations today, but especially with FHA, there are frequent, often weekly, changes to underwriting guidelines and policies.  That is why it is important to use a lender experienced in FHA loans and requirements.  Be aware that if a property is vacant, even for a day, FHA will require a septic letter if the property is not on public sewer.  And if you should need to change lenders, FHA will not allow a second appraisal on a property if one has been done within 6 months.  Keep in mind that the loan process may take a little longer than conventional financing.  Lenders are telling me these days to allow at least 30 to 45 days to process a FHA loan.