FHA Might Be the Way to Go in Today's Tough Lending Environment

FHA lending is once again in vogue. Revised regulations, coupled with the virtual collapse of the sub prime mortgage lending market, have made Federal Housing Administration (FHA) insured loans a viable and popular lending choice for many borrowers. After years of shrinking market share caused by the abundance of Alt-A paper, the FHA is seeing more lenders seeking to be able to offer their borrowers FHA-backed loans.

FHA programs are government-backed loans that give lenders the option to offer an alternative to borrowers who would not otherwise qualify for a prime loan. Prime loans require borrowers to have a 620 or higher credit score, 45% or less debt-to-income ratio, 90% or less loan-to-value. FHA lending provides lenders with the ability to offer a government-backed loan with features that benefit a wider population of borrowers than conventional prime lending entails. Note that unlike other government agency lending such as Freddie Mac or Fannie Mae, FHA does not lend money or purchase loans. The FHA provides the insurance to help lenders mitigate credit risk.

There are many advantages and a few disadvantages with FHA loans. Here is just a sampling of the pros and cons: Advantages:\n\n

FHA loan down payment requirements are small - 3% of purchase price, though this is going up to 3.5% October 1, 2008

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Ability to use a gift as your total down payment

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FHA loan criteria allows borrowers with less than perfect credit

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FHA home mortgage loans allow you to include closing costs in your mortgage amount and, until October 1st, sellers can pick up the closing costs

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Interest rates for a FHA loans versus a conventional mortgage will be very close, if not identical

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FHA loan programs allow home improvement funds to be included in the purchase money mortgage amount

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FHA loan mortgage insurance (1.5% of loan amount) is due at closing but may be included in loan amount

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FHA loan insurance (0.5%) is payable annually - 1/12 of premium included in your monthly payment

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FHA loan appraisals are more extensive than conventional ones - may cost a bit more. These are some major pros and cons. As you can see, the advantages can mean a great deal to you while the few disadvantages result in just a few higher costs to achieve your goal of home ownership. You may not qualify for conventional financing but you might fit perfectly into the FHA loan process.

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For more information contact me by For more information contact me by visiting my website or call 312-264-5864 or e-mail cengel@rubloff.com.