As a loan officer, I have been doing mortgages for 18+ years. With the fall of Subprime loans, I have heard many loan officers refer to FHA as the "new subprime".
This disturbs me a bit. FHA has always been around. It is the ORIGINAL first time homebuyer program although you do not have to be a first time homebuyer.
Many lenders were not doing FHA loans during the subprime boom. This was unfortunate as many of the buyers these lenders put on subprime loans could have gone FHA. Their interest rate would have been lower and fixed.
FHA has many benefits. Here is a list of just SOME of the benefits of FHA:
- Lower down payment criteria. Currently, FHA does not penalize you if you are putting less than a 5% down payment towards purchasing a home. With Conventional financing you typically get a higher interest rate if you are putting less than 5% down.
- FHA allows for seller assisted down payment assistance programs. (Your client gets help with their down payment!!)
- If the loan is structured properly a buyer could truly get in for -0- out of pocket and possibly end up getting their earnest money back at closing!
- FHA does still finance credit scores below 580. Most of the Conventional products require a 620 minimum. (And this credit score would include a down payment.)
- Even before the "mortgage crisis", if you had an FHA mortgage and got into trouble, FHA was willing to assist you. FHA's goal has always been to promote homeownership. But, even more FHA is about making homebuyers successful. When homebuyers would get into trouble with their mortgage, FHA offered counseling and found ways to keep buyers in their homes. (See, this is not a new concept as most think).
So, to realtors I say that if you have a buyer who has little money for the initial investment, had some past credit transgressions, or simply low credit scores- look into FHA financing.
With the new loan limit increases, FHA should be at the top of your list of mortgage programs. Please note: FHA is good for people who have good credit and money to put down as well. If your buyer does not want to pay their own taxes and insurance themselves- it is my opinion, that FHA should be an option to your client as well as the conventional products. You owe it to your client to entertain each possible option. Give them enough information to make an informed decision. They will appreciate you for it.