Some business folks and real estate professionals believe that FHA loans will be primary and good help for homebuyers during 2009. 

But there have been changes, and the new down payment requirement for FHA loans will be 3.5 percent  (not 3 percent) as of January 1, 2009.

Prior to January 1, 2009, the borrower needed 3 percent down payment from their own money.  A question was what part of that 3 percent went for down payment and what part of thatwent for closing costs.  Not all states and localities handled this the same.

As of January 1, 2009, the 3.5 percent FHA loan down payment requirement (from borrower's own money) is to be in every state.  This should clarify some confusion.

But the 3.5 percent requirement will be for the down payment only and will not include closing costs. So even though the borrower can get up to 6 percent seller help at closing, this could mean closing costs only. That help from the seller would not inlude down payment help for the borrower.

The new FHA loan limits are different depending on your state and locality.  The FHA loan limits here at South OC, California, will be $629,000.

What is the FHA?  It's a US government program that was started during the depression to help people buy houses.  Since then, the FHA's main purpose has been securing housing loans for low and moderate income individuals with credit or down payment challenges.  The FHA does this by insuring the lenders who provide the money to the borrower, so that if the borrower cannot make the payments, the FHA will cover the loss. 

 The Federal Housing Administration (FHA) loan programs are run by the US Housing and Urban Development Office.  

If you are a first time homebuyer ... plan now to take advantage of the new tax credit included in the recently enacted US Housing and Economic Recovery Act of 2008 ... a great deal for first time homebuyers.  It's essentially an interest free loan to be repaid to the US government over 15 years.  This US income tax credit (loan) is available for a limited time.  The credit (a) Applies to home purchases after April 8, 2008, and before July 1, 2009,  (b) Reduces a taxpayer's tax bill or increases his or her refund, dollar for dollar,  (c) Is fully refundable, meaning that the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.  This credit operates like an interest-free loan and must be repaid over a 15-year period.   Example:  An eligible taxpayer who buys a home today and claims the maximum available credit of $7,500 on his or her 2008 federal income tax return must begin repaying the credit by including one-fifteenth of this amount, or $500, as an additional tax on his or her 2010 return. See First Time Homebuyer Tax Credit Chart.

Check out my prior article posted about   First Time Homebuyer Programs - Orange County and California (click on).   

If you are a homebuyer here in Southern California and have questions about mortgage rates and FHA, we recommend you contact Tim Sibley, First Capital Mortgage, Newport Beach, telephone 949-718-1511.

Harrison K. Long, Explore Group properties, Coldwell Banker Previews, Irvine, CA.