First-time buyers and those who have lower to middle income have an old way, now turned new, to find a mortgage.
Many are turning to federally-backed Federal Housing Administration (FHA) loans. Mortgage applications increased from 41,530 in December 2006 to 73,444 in June of this year.
When the FHA was established in 1934, it provided the only way for lower- and middle-income buyers to get a home of their own. In 1934 it was difficult to get a home loan because many banks required a down payment of up to one-half of a home's purchase price.
Today, FHA requires a 3 percent loan down payment.
As many mortgage companies came up with innovative financing plans for home buyers in recent years, the number of buyers turning to FHA fell significantly.
Though there are still some nothing-down loans available from mortgage companies, most require the buyer to have a high credit rating and above-average income to get one.
While the FHA system needs some updating, it still works for many people. One of its flaws is the current maximum for a single-family home, which is $362,790. In San Francisco, however, the average home price is $748,100, according to the National Association of Realtors.
Because some lenders don't care to deal with FHA paperwork, usually a mortgage broker handles the loan. It usually takes from 90 to 120 days to get approval. Buyers should know what the entire cost of the mortgage will be including the broker's fee.
Meg Burns, FHA's director of the Office of Single Family Program Development says, "Given how many borrowers really could benefit from FHA financing but how few of them do, I would say we are still in the doldrums."
The FHA is anticipating more applications as mortgage companies continue to make requirements more stringent.
Equal Housing Opportunity
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