Not Your Mama's FHA Loan

Real Estate Agent with Keller Williams

One of the consequences of the mortgage crisis is the increased number in FHA loans.   In the past I have always advised my clients to go with a conventional loan when they could for several reasons.   There were lots of conventional 100% products out there that were just as good if not a better deal than FHA.   FHA would require additional ( and in some canes unnecessary) repairs in order to lend money on the house.   FHA would limit your choice of house because of the repairs required and because of the FHA non-allowables i.e. fees that the seller is required to pay on the buyers behalf.   

In 2006 HUD changed a lot of the FHA guidelines to make them more user friendly and more competitive with conventional loan products.  I'm so glad they made these changes given the stress the mortgage industry has been in the last year.

 First of all, the lenders I work with are all telling me that the 100% conventional productive have all but disappeared.   Even my favorite "Zero down Homeward Bound" conventional loan has raised the interest rate so much that FHA is a better deal.  Another loan product, the 80/20 conventional loan has gone away.   In a mortgage market that lacks some of theses other options FHA can be a great deal.

FHA required repairs used to be a real problem for a lot of buyers and sellers.   My favorite was the one that would require a handrail for more than 3 steps.  The seller always had a hard time understanding why it was perfectly okay for them to live the house without a hand rail on their back porch but suddenly that omission rendered the house unsafe for the new buyer.   FHA will still requires repairs when not doing so will affect the health and safety of the occupants but it's not as onerous as it used to be.

FHA has also reduced the number of fees that the seller is required to pay on the buyers behalf.  The total for the non-allowables has gone from about $500 to $100.  This will put the buyer on a more level playing field with a conventional buyer.  

The most recent and most exciting change FHA has made is to raise the loan limits to $271,050 for the rest of 2008.  Hopefully they will extend the cap past the end of the year.   This will increase the number of buyers that qualify for FHA and help to move inventory.

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