FHA - The Right Loan For Today's Market

by Phoenix Homes Team
May
1

by Matt Smith - Phoenix Loan Officer

In the last 12 months, the mortgage industry changed dramatically. If you tried to buy or refinance in late ’07 or early ’08, you found that many of the standard loan options that you could have chosen in the past are gone. On purchases, the down payment requirements were also higher, usually 10%. On refinances, lenders were no longer allowing you to take all of the equity out of your home. This “credit crunch” was straining the real estate market and beginning to drag the national economy down along with it. The folks in Washington recognized this and in a rare burst of speed, enacted a piece of legislation that has given lenders a new tool to work with – the FHA loan.

You might think, “That’s not new, I had one of those loans when I bought my first house 20 years ago.” And you’re right. Before lenders began rolling out conventional loan programs where the borrower could put little or no money down, have low credit scores, not verify his income or how much money he had in his bank accounts and still get a low, fixed interest rate, FHA loans were used for the majority of the purchases where people were buying a primary residence. But as I said before those types conventional loans disappeared almost overnight in late ’07. Now most conventional loans require a 10% minimum down payment on a primary residence, (and often 20% or more on investment properties), excellent credit scores, and full documentation of income, employment history and money you have in your accounts. So with FHA loans allowing you to put only 3% down, have mediocre credit and the same documentation requirements of the current conventional loans, people quickly began using FHA loans again. But there was just one little problem – the maximum FHA loan that you could get in Maricopa county was about $263.000.00. So if, for example, you bought a home for say $288,000.00 and wanted to put only 3% down and use an FHA loan, you would be disqualified because your loan amount would be $279,360.00 which was over the maximum FHA loan limit of $236,000.00

Enter the Federal Government. They increased the maximum FHA limits in Maricopa County to $346,250.00. This now allows you to purchase a primary residence in Maricopa County for a sales price of up to $356,900.00, put 3% down using an FHA loan and still be under the $346,250.00 maximum loan cap. This, along with the other advantages of using an FHA loan have given a strong boost to purchase activity in the last 30 days. Couple this with declining home prices over the last months, and you are beginning to hear local economists saying that we might be poised for a slow turn around in the Phoenix housing market.

Additional things when using an FHA loan are:

  1. FHA loans are not just for first-time home buyers.
  2. To use the income of two borrowers, they do not have to be married.
  3. Alternate credit can be used in order to qualify for an FHA loan. Four pieces of alternate credit must be provided, and one must a rental history for 1 year. Others types of alternate credit can be phone bills, cell phone bills, power and water bills, auto insurance bills, etc.
  4. An FHA loan can be used by parents to purchase a home for their children. They will both be on the loan and as long as the child is over 18 years old and is going to live in the property as a primary residence, the parent can be a non-occupying borrower. The child does not have to have a job or contribute income or money to the transaction, (if, however, he has bad credit, that could affect the approval of the loan, so call me and I’ll pull a free credit report on all borrowers to make sure).
  5. The maximum FHA loan limit changes from county to county across all fifty states. To find out what the maximum FHA loan limit is in a particular county and state go to: www.hud.gov
      1. On the right side of the home page, look under the blue heading “Sustaining and Promoting Home Ownership”.
      2. Below it find the red tab that reads, “FHA Mortgage Limits” and click it.
      3. Hit the drop down that says “Sort” and click “County”.
      4. Hit the drop down that says “State” and click the state you are interested in.
      5. In the field entitled “County” enter the name of the county that you are interested in.
      6. Don’t enter any additional information, just hit the “send” tab.
      7. You will be given the maximum loan amounts for a single family residence, and duplex, a triplex and a fourplex.

In short, if you have not thought of an FHA loan as one of your options, think again. If you have any questions please feel free to call me at my office during the day or on my cell evenings and weekends.

Matt Smith
Senior Vice President
Pacific Coast Mortgage
Website: Phoenix FHA Loans
Office: (480) 481- 2810
Cell: (602) 369-5158

Categories:
2

You don't know what you are talking about

On May 2nd, 2008 by Tom Jackson
OMG, for someone in the business you sure are out of touch. Have you ever done an FHA loan??? Here are the facts: HERE IS WHY THE GOVERMENTS PROGRAM TO HELP HOME OWNERS IN DISTRESS IS NOT WORKING. I think it's time for some one to get the facts to the public. I own a mortgage company in South Florida. Last August President Bush directed the FHA to help home owners keep their home. Called the home secure program. Even homeowners in foreclosure were supposed to be helped. The FHA will do a loan to someone regardless of how low a score they have, as long as it will save them money. THE PROBLEM is that the lenders who are supposed to be offering FHA won't. They now have a policy of not doing a loan if the borrowers score is below 580. Most borrowers that need the FHA help are below 580. If a person is facing foreclosure that means they have been late about 6 months on their mortgage. When that happens, their score will be in the 400's. Technically FHA would do a loan, but the lenders won't allow it. Even if you are just late twice, your score will be below 580. If a borrower has a score of 581 - 600 there is a 1.25% hit to the rate! Recently FHA started offering higher loan limits, but is the borrower goes to the limit there is an additional 2.5% hit to the rate. The bottom line is that lenders have found a way to profit from this situation. I could go on about more, if you are interested learning more, contact me anytime. I think the public should know the BS that is happening. Someone has to get the word out there!!!

You are missing the point.

On May 6th, 2008 by Matt Smith

Dear Tom,
Unfortunately, you have missed the main point of my article which is that FHA loans DO offer borrowers the ability to purchase a home with a down payment and credit scores that are substancially lower than those required when using a conventional loan. That is not "BS" as you say but simply a fact. I would urge you to contact a reputable lender in Florida and learn more about the advantages of using FHA loans to help your borrowers purchase. You might be interested to learn that your borrower can also use the AmeriDream program and not have to put any money down while using an FHA loan.

I know that this may sound new to many people who say that they have been in the mortgage business for several years. That may be because most lenders have not used an FHA loan for their borrowers in a long time and for good reason. Until recently there were a variety of conventional loan products that were better suited to the majority of borrowers than an FHA loan. But that situation has changed dramatically, (please re-read my article for some of the details).

A few comments regarding your response. You spent almost your entire article commenting on your disgust for what you labeled as President Bush's plan, "Called the home secure program..." And some how, you end up criticizing me for it. Again, please re-read my article and cite where I ever mentioned this plan. If you would like to tell the President what you think of his plan, I would encourage you to write to him. Further, you state that, "Recently FHA began offering higher loan limits, but as the borrower goes to the limit there is an additional 2.5% hit to the rate." I have not found a single lender who is doing that in Maricopa County when a borrower approaches the new Maricopa County FHA loan limit of 346,250.00.

Finally, never did I say in my article that every borrower can qualify for an FHA loan, (again please re-read my article). However, refusing to learn about the advantages of FHA loans is a disservice to your clients.