April 13, 2009 by MSI
FHA (Federal Housing Administration) loans were established in 1934 to help people enter the world of home ownership. The FHA, which is part of HUD (The U.S. Department of Housing and Urban Development), insures the loan so that the lender may offer consumers a better deal. While many over the years have perceived a FHA loan to be a product geared exclusively for first time home purchasers, the truth is that anyone may be eligible. And, there may be benefits for those who are. One benefit of a FHA mortgage is very aggressive pricing with less than excellent credit scores. In today’s marketplace, most lenders that offer FHA loans require a minimum credit score of 620. A credit score at this level does not have a rate adjustment for FHA loans. However, conforming loans (loans that conform to Fannie Mae or Freddie Mac guidelines) have a pricing hit of 3% of the loan amount for a 620 credit score. In lieu of paying 3 points of additional closing costs, the borrower may be able to take on a higher interest rate to offset paying the points. In the current market conditions financing 3 points will generally increase the interest rate by 1.5%!
In addition to great interest rates, FHA insured loans also have flexible down payment guidelines. In a time where the nation’s average home prices are in decline, it is becoming more common to see buyers putting less than 20% down on a new home purchase. The minimum down payment on most purchase transactions is typically 3.5%. While Fannie Mae and Freddie Mac continue to offer loans with minimal down payments, you will find that there is not one private mortgage insurance (PMI) company that will provide insurance on these loans under the same terms as a loan insured by the FHA. It is dependent on the property and the borrower; but PMI companies are typically requiring 5-10% down. In addition to larger down payments, PMI companies are tightening debt to income ratios, reserve requirements, and credit score levels as well.
A FHA loan is not always the best option for a relocating employee; however, the number of transferees and consumers that will benefit from FHA financing is drastically increasing. Key to the process is ensuring that you are working with an experienced mortgage company that is well versed in both relocation and government loan products.
8ffa5c8c-9999-450a-a94e-a9d9a3a056fc|0|.0
