Now is the perfect time for people to buy homes. Interest rates are still very low with all things considered and with home prices falling, people need to take advantage of this and get low fixed payments on these houses... Once the housing market cycles through the record foreclosures, people who are buying homes now will have significant chunks of equity later on... This will help them have bigger down payments on their next homes or a little more peace of mind when it comes to retirement, but they will first need to get approved for their new home purchase...
With so many lenders losing billions of dollars from investing in bad "subprime" loans, guidelines have tightened up making it harder for people to qualify... Most conventional loans now require a minimum of a 5% down payment, in addition to higher rates if they don't have a 720 or higher score... The monthly mortgage insurance is higher now too based on lower credit scores... In addition to the 5% down payment, the majority of the time, the buyer will be responsible for closing costs and pre-paid expenses (at least the portion that the seller cannot pay for them)... What are people to do that aren't able to save up 5%? I'll tell you what they need to do... They need to get an FHA loan... Not only does FHA only require a 3% down payment, they allow the seller to pay up to 6% of the sales price towards the buyer's closing costs and pre-paid expenses... With a 5% down payment on a convnetional loan, the seller is only allowed to pay up to 3% of the closing costs for the buyer...
The 3% that the buyer is required to put down on an FHA loan can come from a gift from a relative, an employer, or even a down payment assistance company... By getting a gift from one of these sources including the down payment assistance and having the seller pay all the closing costs, a person can still get into a new house with very little, if anything out of pocket... This will be as close to 100% financing as a lot of people will have access to... In addition to that, they will still enjoy a 30 year fixed rate that is comparable to a convnetional interest rate that requires someone with great credit... Also, the monthly mortgage insurance on an FHA loan will be less than it would be on a conventional loan with 5% down...
So, FHA is helping all types of people (not just first time homebuyers)... FHA is helping people that have a few bumps on their credit, people that can't save up 5% plus a portion of closing costs, and people that might have lots of money, but needs to have their loan manually looked at by an underwriter because they can prove things on their credit aren't accurate (divorce decree, etc.)...
FHA also increased their loan limits this year to help capture some of the fallout for people that can't get approved anymore for convnetional loans... Depending on the county they are purchasing in, the loan limits here in North Texas are $271,050...
FHA to the Rescue!!!
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