FHA Loans Provide New Hope in Long Beach

FHA loans were once ignored due to the many loan options available from conventional lenders. With pricing pressure throughout the city and stricter guidelines from conventional products, FHA loans are popular again!

FHA guidelines provide substantial credit flexibility and other benefits to borrowers.
Congress created the Federal Housing Administration in 1934. At this time, nearly two million construction workers were laid off. Only four out of ten people owned their own home. In addition, mortgage loan terms were outrageous. Borrowers had to put 50 percent down, and the note ballooned in 3 to 5 years. So the mission of the FHA was to encourage home ownership.

The FHA became a part of HUD, which is the Department of Housing and Urban Development, in the year 1965. In the mid-1980's, the FHA transitioned to what we call direct endorsement and began approving lenders to underwrite and close their own loans. Prior to this time, the FHA did have a hand in the process of the loan.

Unlike, Conventional loans, FHA loans are not score driven. Instead, they are written in a way that provides the borrower the benefit of the doubt that there had been, at some point in their past, circumstances beyond their control, and as long as the borrower has recovered from those circumstances in a reasonable manner, they're generally going to be credit-eligible for an FHA loan. The FHA guidelines are forgiving about circumstances that many other lending programs, including conventional, are not favorable towards.

An FHA-insured loan allows a wide variety of assets to be used to cover the buyer's down payment and closing costs. FHA guidelines require a 3% minimum investment from the borrower; however, those funds can be from a gift or from a variety of other sources. The FHA considers gift funds to be the same as if they were the borrower's own funds truly seasoned for sixty days in the borrower's account, or proven to be from other eligible sources. You also have the option of using down-payment assistance charity programs like The Nehemiah® or AmeriDream® down payment assistance programs. Use of charity fund programs allow the buyer to receive a gift for the down-payment immediately prior to closing, and then the amount of the gift plus a small service fee is collected from the seller immediately after closing. This is a legal way of funneling money from the seller to the buyer that is acceptable to HUD. There are also numerous City, State and Federal down payment assistance programs available to offset the 3%.

FHA guidelines also allow fund sources such as mattress money, or lease option credits used, as they are lenient about how the borrowers can procure the down payment money. As an added bonus, the FHA is very liberal about what they will let the seller pay in the way of the buyer's closing costs and pre-paid items. The seller can pay up to 6% in concessions towards the buyer's closing costs, pre-paids and discount points.

A distinct advantage of an FHA insured loan, as compared to a conforming loan, is great interest rates and lower monthly mortgage insurance (MI). In most cases, standard FHA loan interest rates are usually better than a conforming 30-Year Fixed loan. Also, the mortgage insurance premium on any FHA loan is only .05% per year.

Another advantage of an FHA loan program is the variety of properties that can be used. While FHA Guidelines do require that the property be Owner Occupied (OO), they do allow you to purchase condos, planned unit developments, manufactured homes, and 1–4 family residences, in which the borrower intends to occupy one part of the multi-unit residence.

Article provide by Christal Dunn of Bank of America