If you are a prospective home buyer and are keeping a watchful eye on the market, it is easy to get lost in the media frenzy that the nation’s housing mess has resulted in lenders requiring a stellar credit score and at least 10 to 20 percent down payment.
The truth is that nothing-down mortgage loans did not evaporate once the subprime mortgage crisis heated up. The Federal Housing Administration (FHA) offers loans that only require a 3 percent down payment. But that is not all. Some people are using down payment assistance loans, through local banks, with FHA loans in order to bring less than 3% to the table. In some cases, even nothing.
The only thing that you really need is a decent credit score. Sorry, but your score of 500 will not get you a home loan anymore. The minimum score is now around 570 to 630. This sounds good to people who have kept up with their bills, but have not been able to save much over the past couple of years due to increased food and gas prices.
Why are FHA insured loans becoming so popular? They are becoming a hot option since they require only 3 percent down and they can be made through your local banking lenders such as Chevy Chase, Wachovia, Bank of America or Sun Trust. They are also government backed loans that serve the purpose of helping the housing market out when there is problems in the private market for loans. That’s right, FHA insures 100% of the loan, so there is no risk for the lending institution.
In addition, the borrower usually pays an insurance premium up front. This is usually 1.5% of the loan amount; however, this can be directly financed into the loan amount. There is a down payment of 2.25% plus factored in closing costs for a total of 3%.
How is this different from conventional financing? Here is the beauty. Besides the fact that with a conventional mortgage requires down payments of at least 10% and a FHA loan only requiring 2.25%, the FHA program allows the borrower to finance many of these charges, thus significantly reducing the up-front cost of buying a home. The only difference is that there are small monthly premiums that cannot be financed at are added to the regular mortgage payment. The loans have quite a history. FHA was created by Congress in 1934 to boost homeownership during the Great Depression era. The agency played a key economic role in the 1940s, by financing military housing as well as home loans for World War II veterans. Never considered a FHA loan? Well, today is probably the best time to utilize one. A FHA could be a buyer’s best option since FHA accepts low credit scores and is specifically targeted to any home buyer that does not have much in savings to offer for a down payment.
Why do FHA loans get buried in the media? They aren’t news is the reason. They have been around since the great depression, so they are not news worthy. Stimulus packages and other legislation targeted toward homeowners get the coverage because it is something fresh.
Don’t get me wrong, FHA is mentioned numerous times in news articles. It is jus usually not the lead.
Sometimes it is hard for people to understand the significance of FHA loans at this time in the market. Think of houses as winter coats, trying to be sold at the beginning of summer. There are an oversupply of coats and in order to get rid of them, they are being sold at cut rate costs so that they will sell fast.
Now, most people will pass the clearance rack of coats and go right to the summer clothes. The smart shoppers, will first go to the winter coat rack and get a $200 coat for less than $30 and hang in their closet for next year. The wise shopper knows when to take advantage of low prices.
Remember, these deals won’t last and some experts say that the market is as low as it will get. Today, in a press release, a government report said that new home sales in the U.S. rose in April. This signals that there is only a matter of time before consumer confidence rebounds and these closeout prices are a thing of the past.