With all of the recent problems in the subprime market, there will be more attention paid to one of the best home loan programs out there - FHA. In my opinion, the FHA home loan program is ideal for first time home buyers or borrowers with a less than perfect credit.
The Federal Housing Administration (FHA), a wholly owned government corporation, was established under the National Housing Act of 1934 to improve housing standards and conditions. Its goal is to provide an adequate home financing system through insurance of mortgages, and to stabilize the mortgage market. For decades, FHA was the best program for low to middle income borrowers until the age of subprime loans became the rage with the no-money-down and interest-only options.
Here is a chart to show you the explosion in subprime originations and the steady decline of FHA loan production. Keep in mind that most of the subprime loans carry much higher rates than FHA loans. The subprime loans were aggressively marketed and provided the quick, easy fix for borrowers who did not want to wait until their credit was ready for FHA.
Here are a few of the advantages of the FHA program:
- only 3% down which can be a gift from family or a grant
- all one loan with a very competitive fixed rate (30 yr fixed 6.0% today)
- flexible credit guidelines and allows for family members to co-sign
- options for buyers currently under Chapter 13 bankruptcy protection
It is important to check and see what the FHA loan limit is for your county as it could be a limiting factor. The upfront and monthly mortgage insurance is reasonable and there are down payment assistance programs that can help limit the cash due at closing. You can only have one FHA home loan at a time as the program is designed to finance owner-occupied properties.
FHA - an oldie but goodie in my book.