FHA – It’s NOT a 4-Letter Word
It’s BAAAAACK!
We are hearing the term FHA a lot lately and many of the “longer experienced” agents are fretting about their buyers using an FHA loan or the buyers on their listing using an FHA loan. Here are the reasons that FHA is becoming a viable choice for many buyers:
1. FNMA and FHLMC have instituted tiered pricing based on the credit scores and the LTV. So buyers with lower credit scores and higher LTV’s are paying higher interest rates than in the past.
2. The minimum down payment on a Conventional loan is 3% and the monthly PMI is higher than an FHA loan MIP.
3. FHA allows a buyer to receive a gift from a relative for closing costs AND down payment.
4. The maximum loan amount has been increased to $271,050 and there are no maximum income restrictions so FHA fits more buyers.
Here are the reasons to not fear FHA:
1. In the past there were “nonallowable costs” that could not be paid by the buyer and so the seller had to pay approximately $800 to $1,000 of the buyer’s costs. There are no longer any “nonallowable costs” so the costs of selling a house is not increased as compared to a Conventional loan.
2. In the past FHA protected the buyer by scrutinizing the condition of the house and many times requiring significant repairs before accepting the property. This has been relaxed as well.
3. The underwriting for FHA loans is more relaxed than for Conventional loans today. FHA looks at a buyer’s credit history over the past 12 to 24 months to make a credit decision. The credit scores are relevant but less so than with a Conventional loan.
4. FHA allows for manual underwriting. So if the automated underwriting refers or denies a loan and there are reasons that support why a loan should be made, FHA allows for a live underwriter to review the file and override the automated decision.
Here are some things to be aware of when using FHA:
1. The underwriting turn-times are longer than we are accustomed to with Conventional loans. So make sure there is adequate time for the processing, underwriting and closing of an FHA loan.
2. Many Loan Officers and Loan Companies that have never worked with FHA loans in the past are now getting into the FHA game. The FHA loan is different from a Conventional loan and the Loan Officer and Loan Company must be experienced with FHA.
3. Some people are touting FHA are the new subprime source. It is not and that’s sort of why we got in this situation in the first place. A “good” loan should be made and a “bad” loan should not. It is anticipated that FHA will play a more significant role in our market. We are in a fantastic market and utilizing FHA will allow us to make the most of our market. If you would like to know more about FHA please call me.
Greg Burkett281/657-0472 x301
Filed under: Economy/Market, Katy Family Homes, Lenders
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