By the end of February, The Wall Street Journal felt confident enough to print a headline touting, “At Last! Banks Rev Up Lending”. FHA loans are among the most popular loan programs funding real estate purchases in Maine right now. But there is much confusion over the term “FHA Loan”. To be perfectly clear, let’s get some terms straight. “FHA” stands for the Federal Housing Administration. And “FHA Loans” aren’t … aren’t loans that is. But that doesn’t mean that FHA loans aren’t going to continue to be significant to the Central Maine real estate market from Lewiston-Auburn to Augusta through 2012.
The term “FHA loans” actually refers to real estate loans made by companies other than the FHA. If that isn’t contradictory enough, the banks and other loaning entities are called ‘FHA Lenders’ (the ones who aren’t, actually). The reason behind the naming contradiction is that these mortgage loans are only guaranteed by the FHA – that is, insured by it, not funded by it.
The FHA offers to act as an insurer in order to lower the risk to the actual mortgage lender. Since the availability of FHA insurance makes it less hazardous for those lenders to grant people mortgages, the ultimate effect (and intention of FHA loans in the first place) is to make it easier for potential homeowners to obtain a mortgage, thereby freeing up the kind of large capital that mortgage loans usually involve. FHA loans help ‘unlock’ the real estate market, allowing people to move in and out of residences more freely.
FHA loans can be a good deal for some people, but as with most financial alternatives, there are both pros and cons to the program. A key advantage of FHA loans is that potential buyers with marginal credit scores can more readily quality to get them. FHA loans also carry relatively low interest rates, and because they are based on the good credit and massive financial power of the federal government (AKA taxpayers), down payments and closing coats for FHA loans can be kept low.
While FHA loans are popular amongst current Lewiston-Auburn and Augusta Maine Buyers, there are some more competitive Conventional Insurance loan programs out there for buyers who can come up with a 5% down payment! For home buyers in Central Maine with good credit scores, other private mortgage insurance options are available. In many cases their premiums may be lower than comparable FHA premiums. As is well known, the FHA also places a limit on the size of a mortgage it will guarantee. If your transaction involves a larger “jumbo” mortgage, FHA loans won't be available. This isn’t much of an issue here in Central Maine but in other parts of the country where real estate prices are more expensive, it can be.
When you are thinking about buying a home, the first step is getting pre-qualified with a reputable lender or mortgage broker to assess your financing options and the pros and cons of the programs available to you in the Central Maine real estate market. The Tanya Busch Team is here to help you with these and all of the other current intelligence we take into account when helping you find a property and structure the most favorable terms for your Lewiston-Auburn or Augusta area real estate purchase. We have an in-house lender available to answer all your mortgage-related questions to assist you with the first step. Contact us today and we’d be happy to set you up!
You can reach us at (207) 689-9880 or www.TanyaB.com
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