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What the FHA is Going On?

By Jim Gramata

Real Estate Broker/Owner with The Gramata Realty Group @properties Available upon request

July 30, 2008 06:52 AM

Used to be FHA was a four letter word. Builders could care less about qualifying and lenders were hard pressed to justify the amount of time and work required to close on an FHA loan.

Are you wondering what is happening with the local, regional and national real estate market. Well me too. I am working twice as hard these days to hep assist my clients with securing their mortgages since that seems to be the biggest obstacle to the bulletproof transaction I like to create around each of my client purchase contracts.

So, lately many of my first time buyer's are inquiring about whether this property is FHA qualified or what the requirements are for an FHA loan. Usually the two main barriers to securing an FHA loan on a property are that the builder is still in control (not an established association yet) OR the bylaws of an existing association have a right of first refusal which is an immediate NO to qualifying.

So, now many of my clients are asking me "is this one qualified"...

So now I am referring them (or checking myself) at this Federal Housing Authority (FHA) site:

https://entp.hud.gov/idapp/html/condlook.cfm

I hope this helps and remember, there are options available to buyers with less than 5% down to make a purchase. Of course, usually the more money you put down the better your rates and loan terms (for the most part) will be.

Good luck!

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Daniel Macris

GreenWave Solutions - Atlanta, GA

Jim,

I am on the board of my home owners association at my condo and I hear the sales agents talk about FHA. What exactly is it? They described it to me a program that lets people who shouldn't be able to get a loan get one. If that's true, does it invite a poorer demographic into the community?

http://greenwaveforever.com

Jul 30, 2008 07:03 AM

Jim Gramata

The Gramata Realty Group @properties - Chicago, IL

GREEN sales brokerage and construction guru

Hi Daniel

I am no expert on FHA loans but I do know there is some truth to what you say about unqualified borrowers getting loans when they shouldn't be. The FHA is a Federally run administration which guarantees (doesn't fund) the loan to the lender and used to pay into the loan to reduce the risk since one of its allowances is that borrowers do not have to put down so much money.

This loan went onto the back burner when PMI came along (private mortgage insurance) which was paid by the borrower to basically insure the loan (until the LTV hits 20% equity).

Now this leads us (further away from the FHA-but interesting nonetheless) to what lenders did over the past decade to avoid PMI- second mortgages. This in my opinion is a real contributor to our current lending mess-that too many borrowers did not pay PMI (nor did you have an FHA backed loan) and as a result the burden was placed on these major lenders/investors who are now getting into serious trouble because of defaults.

OK, So back to FHA- as in any loan, the more money down the less risk there is, however, when a first time buyer takes assistance from a Federally insured loan such as these FHA's I believe it is a win-win. Buyers (usually first--timers) are able to buy even in this down market(40% of recent loan activity came from that group) and slowly we can begin to crawl out of this mess.

Beyond those details I punt to the lenders out there on more information....

Jul 30, 2008 07:21 AM

What the FHA is Going On?

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