With all the upheaval in the mortgage industry including the closure of many wholesale lenders and the subtraction of sub prime resulting in the loss of hundreds maybe thousands of loan products financing options are indeed limited these days for the home buyer. However one loan product has remained with us and that is the FHA (Federal Housing Administration) mortgage. Especially for the first time home buyer, the FHA loan has always been one of the better programs, if not the best in most situations.
In the past the most common alternate to FHA was the sub prime loan. Most sub prime loan programs carried unfavorable terms such as a 2 or 3 year "fixed" rate (in other words an adjustable rate that typically increases after 2 or 3 years) and stiff prepayment penalties. Unfortunately many borrows or "victims" were put into these programs because their lender or broker didn't have access to FHA and therefore were not in a position to recommend it. Instead of referring these people to a lender that could give them the better loan program the loan officer would throw a would be FHA qualified borrower into an unfavorable sub prime program. Those now extinct sub prime programs are one of the main reasons why the foreclosure rate is so how these days. Because of falling house prices people cannot refinance out of these programs and therefore cannot afford the adjusted upwards high payment.
Now that sub prime loans are a thing of the past the FHA loan is now the most common loan for the first time home buyer, the buyer with little money to put down, and the credit challenged borrower. FHA loans require a much smaller down payment than do conventional loans. You can also still take advantage of down payment assistance programs in conjunction with FHA loans. While "non-profit" down payment assistance programs like Nehemiah, etc. may be going away most city sponsored down payment assistance programs will be sticking around. For example there is one in Austin, Texas that offers up to $40,000 in assistance.
Another recent development in FHA loans is the raising of the maximum loan amount levels. All across the country FHA loan limits have been rising, this due in part to the current crisis in the mortgage industry. This development is making FHA loans more accessible to people that are searching for higher priced homes.
Again the most attactive part of the FHA programs is the lower down payment requirements and the more relaxed credit / income guidelines. While the credit and income guidelines are more relaxed they are not ridiculous like some of the old sub prime loan programs were. You will still need to maintain a decent credit standing before getting approved for a FHA loan. The FHA guidelines are there for the purpose of preventing the person that has no business of buying a home from buying a home.
FHA loans do carry an upfront mortgage insurance premium (MIP) and require monthly mortgage insurance. However a good part of the MIP can be refunded if one sells or refinances within a certain time period. Also the FHA loan program typically carries with it a very competitive rate. Altogether the payment on an FHA is typically very affordable to the qualified borrower.
If you are a first time home buyer or are having a hard time getting qualified for a conventional loan ask you lender about FHA. If they do not have FHA available go to a lender that does. FHA does have strict lender guidelines and therefore not everyone can offer it. If you are a loan officer or mortgage broker and cannot offer FHA loan programs you better get with the program. With the changes in the mortgage industry it is going to be harder and harder to compete without the ability to offer FHA loans. Just ask anyone doing FHA loans these days. They will tell you that "FHA is all the rage".
