One of the most popular first time home buyer programs is the HUD FHA loan. The best part is you don't have to be a first time home buyer - anyone that qualifies can use this program.
The only limitation is that the base loan amount can’t exceed $271,050 (at least in the Spokane area – higher limits apply in higher cost areas like Seattle and the Western part of our state) which equate to a home price of about $280,000. That does not mean you can’t use the program to purchase a more expensive home, it just means you will need to make a larger down payment if you do.
Highlights of the FHA loan are:
- 3.5% down payment – that’s only $6,125 on a $175,000 home. You can come up with that!
- ALL of the down payment can come from a gift from a family member.
- Do not need to be a first time home buyer.
- No limit on how much money you make.
- Family members can help you qualify by co-signing on the loan.
The FHA loan can be a great program for "out of the box" situatioons that don't fit the cookie cutter mold a Conventional loan program requires. I recently helped a college student who had completed his AA but is still working on his 4 year degree at Eastern Washington University. He had some part time work experience, but nothing you could use to qualify for a home loan.
His mother was willing to co-sign his loan but two different lenders said the son needed to have a history of working before he could qualify. I knew that was not HUD's requirement so I spoke to a couple of our other wholesale partners and found one who was willing to accept the loan with just the mother's income - even though she wasn't going to live in the home. Now this young man is a home owner years earlier than if he’d had to wait until he graduated and obtained full-time employment.
WARNING ON FHA LENDING - When talking to a lender about an FHA loan be wary. In 2007 only 4.12% of all homes sold were financed with an FHA loan (Source: FHA Single Family Activity in the Home-Purchase Market Through January 2009). In 2008 that number had jumped to almost 13% and it’s running close to 30% year to date in 2009.
Why the dramatic increase in FHA loan business?
Well, FHA is the “new” loan program of choice for all the lenders who used to peddle subprime and alt-A loans. HUD’s new Secretary, Shaun Donovan, testified before the US Senate on April 2, 2009 that the number of FHA approved lenders had increased by 525% since 2006!! I’m not a math genius but I think that means that only 20% of the current FHA approved lenders have been involved in this specialized lending product for more than 2 years. The other 80% have just jumped on the bandwagon. If you talk to a lender about an FHA loan, your first question should be “how long have you personally been approved to offer this loan program?”
Home loans are my passion - if you have any questions about how an FHA loan can help someone finance their first home just give me a call at 509-252-9151 or send an email to mmullin@theloanconsultant.com
FHA is in this market what 80/20s were a few years ago - of course if those people chose FHA several years ago many would be much better off right now!
FHA is a great way to go, most of the market is going FHA at this point. The new emergence of the 203k loan also helps buyers in this market. The 203k loan is designed to help buyers purchase forclosed homes.