The current credit crunch in the financial and real estate markets have significantly eliminated a vast pool of borrowers with a desire to purchase or refinance a home. This especially rings true in high cost markets like California and the San Francisco Bay Area.
FHA loan programs offer great terms compared to conventional loan programs affected by challenging qualifying standards that require a large down payment. Congress and the federal government are on the verge of raising conforming loan limits for Fannie Mae and Freddie Mac mortgages in high cost areas.
Those in the know believe it's a matter of when not if the conforming loan limit will be raised and when this happens, the FHA loan limit will be increase to match the higher conforming loan limit. Therefore, the revised FHA loan limit could be increased from $362,750 to $625,000 or higher.
The following are some of the attractive features of the FHA loan programs for owner-occupied properties:
- Down payment is 2.85% of the purchase price
- Down payment assistance / "Nehamiah" programs available *
- No credit score required- good credit for the previous 12 months is OK
- 100% gift for down payment is allowed
- Seller can credit the buyer up to 6% of the purchase price for Buyer's non-recurring and recurring closing costs
- 2/1 interest rate buy-down and straight 30 year interest rate buy-downs are available
- Pest control recommended repairs- all section 1 items, all section 2 items (that could lead to further damage) and all recommended further inspections of inaccessible areas must be completed with a pest control certification at close of escrow
- Allow 45 days to close escrow
- Collection accounts on credit report do not automatically have to be paid in full
- Bankruptcies OK if older than 2 years (in some cases, older than 1 year is allowed!)
- Non-occupant co-borrowers are OK (blended debt-to-income ratios allowed)
- Back-end qualifying ratios from 41% up to 50% in some cases
- 1 to 4 residential units OK - 2 to 4 units have higher loan limits
- Condominiums do not require private mortgage insurance (PMI)
- Single family dwelling (SFD) and planned unit developments (PUD's) require PMI at .5% of the purchase price (conforming loans require PMI at 1%)
- Unapproved condominium complexes require "spot" approval
- Not previously approved and then removed from approval list
- No pending litigation against the condo homeowner's association
- No more than 10% of the units delinquent on HOA dues
- 51% owner occupancy ratio required
- Up to 10 units maximum in complex under spot approval (some exceptions may apply)
* The Nehamiah down payment assistance program is a non-profit organization. The seller makes a charitable donation to Nehamiah then Nehamiah forwards the Buyer's down payment to the escrow account. Please note that some title companies may not facilitate this program and you should confirm prior to opening and escrow account.
The FHA loan program can open doors for your clients looking to buy a home or refinance into a more affordable loan program. Be sure to contact your local Senator and urge them to raise loan limits for FHA and conforming loans.
Pete Sabine
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