FHA to the Rescue for Many Homeowners

With the Federal Gov­ernment's re-emphasis on "FHA" as the key vehicle for resuscitating the real estate market, now is a good time to review the FHA Mortgage in more detail. Let's start with the basics. 

First off, the "FHA"  insures loans that approved Lenders make--it does not purchase them as Fannie and Fred­die do. If an FHA insured home goes into bankruptcy, FHA pays off the mortgage to the lender, takes ownership of the home and then proceeds to sell it (a HUD home).

FHA loans are available for 1 to 4 units, owner occupied home. There are a number of FHA programs that cover the Gamut of Real Estate offerings from your "Vanilla" FHA loan to condos to REO's to reverse mortgages to rehab to veteran loans and more.

Over the last few months, the FHA began implementing some changes to its programs. In addition, the 2008 Housing & Economic Recovery Act placed additional changes on FHA practices, some of which modified FHA proposed changes. Here are some of those changes:  

• Converting Existing Homes to Rentals

FHA has changed its underwriting rules to limit the ability of a home-owner to use rental income from a previous residence that it converted to a rental property when applying for a new mortgage on a second property. Under the new rule, the homeowner must prove sufficient income to make both mortgage payments without the rental in­come or have an equity position in the rental property that it will not likely result in defaulting on that mortgage. (Exception to this rule is for employ­ment relocations.) No Surprise, as this change mirrors the announcement by Fannie Mae in August. Apparently, homeown­ers--in increasing numbers--are choos­ing to vacate their existing principal residence and purchase a new residence. They are then providing misleading informa­tion on the rental income of the property being vacated to justify the new mortgage. These changes effec­tively end the "bail and buy" loans.

• Down Payment Requirements

The 2008 Housing and Economic Recovery Act also called for an in­crease in down payment required to 3.5%. That change went into effect January 1, 2009.  Seller concessions of 6% are still al­lowed; however, down payment assistance programs have been eliminated effective October 1, 2008. 

As with any Loan Program, there are a number of stipulations that must be met to gain ap­proval. That is why it is important to choose the right FHA approved lender. Not all FHA approved lend­ers service all FHA loan programs.  Not all programs are right for you. Contact your lender for the most up-to-date information.

Kathy Hyatt, Ft. Lauderdale, Florida