Fear Not FHA

The FHA home loan has become the preferred vehicle for prospective buyers with less than perfect credit, low down payment, or other extenuating circumstances, into home ownership.   It has been proven to boost sales of existing homes and help sell new condominium units and condo conversions.   For several years, the proliferation of easy-to-qualify sub-prime mortgage products into the marketplace deemed the FHA loan an antiquated fossil.   The reality is FHA has been streamlined in recent years to meet the demands of a changed market. It is the best way for low down payment owner occupants to finance a home and can propel the sales of newly created condominium projects with FHA approval.

The Federal Housing Administration (FHA) is a U.S. government agency created during the 1930™s to improve housing standards, provide mortgage insurance, and stabilize the mortgage market.   Part of HUD since the 1960™s, its integral role in the housing market as a loan provider makes it an important part of our housing economy.   With as little as 3.5% down payment, a credit history, and verifiable employment, home ownership is possible.   The American dream is alive and well!

The FHA home loan is insured by a combination of upfront mortgage insurance premium (UFMIP) and a monthly mortgage premium payment.   The UFMIP can be financed as part of the loan, paid by the seller, or paid outright by the borrower.   Since it is prorated, a borrower that sells their home or refinances into a different loan can expect a portion to be returned within the first five years.   Moreover, the monthly premium paid is usually less than commercial available options because FHA is far more forgiving of credit scores than mortgage insurance companies.   As with conventional loans, mortgage insurance can be eliminated once equity in a home reaches above 22% of home value.

Years ago, FHA loans were viewed as cumbersome to sellers and real estate agents.   Not anymore.   Many of the burdens to the current home owner to make cosmetic repairs have been removed.  The requirements made by underwriting to move forward have softened to ensure an FHA loan close as smoothly as a conventional loan.   Generally, if a home is construed as safe, sound, secure, and sanitary, it will pass FHA approval.   Items such as a roof with usable life, a functioning heating system, and a working toilet are still necessary requirements.

Condominium associations and developers alike have been slow to react to the economic changes of the home sales market.   Fear of the unknown and archaic condo by-laws such as Right of First Refusal have prevented existing condo boards from drafting rules friendly to FHA home loans and have shut out a sizable number of first time home buyers.   With the elimination of sub-prime loans over the last few years, condo owners should be eager to sell their units by having their condo association FHA approved.   Not having an FHA approved condo is a hurdle impeding home sales within a project.  Developers of new condominium projects should work to have FHA approval to boost potential sales during a pre-sale.

It is high time to embrace FHA home loans.   They continue to be the safest low equity mortgage product on the market in a time when home sales have been lackluster.

© 2008 Michael S. Amers

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