Jeff Belonger does a great job of clearing up some of the confusion many buyers and real estate agents may have around FHA loans.
In our local market FHA, VA and USDA are among the most commonly used loan programs. These are the three government insured or guaranteed loan programs with little or no down payment. FHA is extremely popular for those not eligible for VA and for homes not in rural districts that qualify for USDA.
FHA loans are not dead and shouldn't be going any where soon.
The other day a loan officer sent me an e-mail asking me if FHA loans are going away anytime soon. I asked, where did you hear this nonsense. The loan officer replied, “from 3 realtors in my area.” Sounds like water cooler talk to me.
My Common sense – If FHA loans disappear, so will our economy, right off the map. Here is why..
Positives with FHA loans -
FHA still allows you to put 3.5 percent down as your down payment, even with a credit score of 620. Yes, there are VA loans and USDA loans, which are very good loans, but they have restrictions for many borrowers.
In regards to conventional loans, it would be very difficult to find a lender to do them below a 680 credit score with 5 percent down, because of the MI (mortgage insurance) company restrictions. So your most likely scenario is that you would need a 680 or above just to put 5 percent down, and still with large pricing adjustments.
You can even have a non-occupant co-borrower co-sign for your FHA loan. The guidelines are much easier than those of a conventional loan.
FHA Rumors and FHA Myths -
FHA loans are more expensive than conventional loans.
To many rumors stating that FHA loans are more expensive than conventional loans. The main reason why someone would say this is because of FHA’s upfront mortgage insurance. The upfront is only 1 percent of the base loan amount. Besides, if you have credit scores below 680 and putting down even 19 percent, you will be paying any where from 1.75 points to 2.25 points for that loan, besides the normal fees. And this will be out of pocket, to where the upfront mortgage insurance is rolled into the loan. The general fees and rates should be almost the same with any lender out there. For a better glimpse to why FHA loans might be cheaper, even with 10% down, please read this post. FHA loan vs Conventional loan with a 659 credit score
6 percent seller concession has been reduced to 3 percent -
(thanks to Joe Pryor - comment # 9) - No, you can still get 6% seller help. It has been commented on the Federal Regsiter, but it's still in it's talking stages.
FHA Origination Fees -
All FHA loans have origination fees. False. Another rumor is that FHA gets part of the origination fee. False. I actually had a borrower that was told this once by another loan officer.
FHA appraisals are more harsh than conventional appraisals -
Why would anyone want to purchase a home that might need major repairs. Maybe the house is really beat up, then this could be true. Hence why you could do a FHA 203-k loan, which would allow you to add the cost of all repairs into the mortgage. Secondly, FHA did away with the VC sheet prior to 2003, so we are just talking about specifics in most cases.
FHA Loans take forever -
Sometimes taking up to 2 to 3 months. Well, many loans are taking a little longer now because of all the checks and balances when it comes to the mortgage process. But if you are speaking to a very good loan officer and if they do their job properly upfront, then things should get done in a reasonable time. What is a reasonable time frame? 30 days from start to finish for a loan to close.
Remember : A FHA loan is not just for first time home buyers.
Summary : Just be careful of such rumors. Check the facts, because some people are just true sales people and don’t know any better. It just comes down to speaking with a very qualified loan officer who will ask the borrower about their goals, to figure out what loan best fits that borrower, not what’s easy for the loan officer. And seriously, people need to stop listening to their friends, neighbors, family members, and some realtors that just don’t know any better.
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For more information on FHA loans, please go to this link. The FHA Expert
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!
For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors
Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc
Randy L. Prothero, REALTOR®
Broker-in-Charge, ABR, AHWD, CRB, CRS, e-PRO, GRI, MRP, SFR
Team Leader - "The Prothero Group"
Randy Prothero is well established as an expert in working with military / VA clients and first time home buyers. His home seller's (listing) campaign is one of the most aggressive marketing programs in the area. His luxury home listings sell faster and for more money.
Based out of Mililani, Hawaii. Randy services the island of Oahu (Honolulu County) Performs mediations and ombudsman services for the Board of Realtors. To improve overall professionalism in his area Randy also offers classes for real estate agents.