Help for the Home Buyer: the Resurgence of Fha Financing

by : Bill Black

The Federal Housing Administration (FHA) is a government agency whose goal is to assist high risk home buyers. This segment of the population includes those with spotty credit histories, first time home buyers, and low income households. These people traditionally have had a difficult time getting a home loan because they pose too much of a risk to lending institutions.

The FHA helps by insuring the loan, thereby taking away the risk element from lenders. They also require a low down payment, which makes it easier for individuals to enter the real estate market. Another benefit is that they make sure that you can afford to make your monthly payments before handing out any money. The last thing they want to do is assist you in buying a home, only to face foreclosure at a later date due to delinquent payments. They want to help you buy a home and keep it.

While the FHA has been in existence since 1934, FHA loans have decreased in popularity in recent years. There are a few reasons for this, including the fact that there is a limit to the number of people who can take out these loans. Also, it is difficult for mortgage brokers to become FHA approved, so only a small percentage of mortgage brokers handle these types of loans. Unapproved brokers then have no option but to offer things like sub prime loans. There is also a cap on the amount of loan money you can receive. This limits many people's options.

Perhaps the biggest reason that fewer people have been going the FHA route is the fact that during the recent housing boom, teaser rates and lax qualification standards made other types of home loans more desirable. It was easy to get a home loan without having to prove income or have a good credit history. Low payments drove thousands of buyers into the market.

Unfortunately, many of those homeowners who were wooed by the glossy mortgages are now facing foreclosure. Their adjustable mortgage rates have reset, meaning that their monthly payments have increased. Buyers who didn't take this fluctuation into account are now facing the consequences. Many many homeowners are now in a desperate situation, unable to make their payments.

At the same time, property values are dropping. Many homeowners now owe more than their home is worth. Because of this, refinancing really isn't an option for most people.

Due to the unethical practices of many lenders (i.e., offering high payment loans with teaser rates, and giving loans to anyone off the street, regardless of income), many people are now in a heap of trouble. Interest rates are climbing and the real estate market is in a slump. The entire economy is being affected by the cost of sub prime lending in the real estate market.

In order to prevent further economic disruption, and to assist potential buyers, President Bush has announced plans to make changes to the FHA. Increasing loan limits, allowing more people to take out FHA loans, and lowering the down payments are some of the planned changes.

For homeowners who are drowning in debt, there is a new program called FHASecure. This is a program for homeowners that have a good payment history, who have only missed payments since their adjustable rate mortgages reset. To qualify, you must have a solid history of making on-time payments, your interest rates must be reset between June 2005 and December 2009, you must have 3% cash or equity in your home, a strong history of employment, and proof that you have enough income to make your monthly payment. For owners with good credit, but who were lured in by teaser interest rates, FHASecure can be a lifesaver.

In just the last couple of months, FHA loans have suddenly burst back onto the mortgage scene. Thanks to the president's proposed changes to the FHA, more people can be on their way to buying a home that they can afford. And for homeowners that are feeling the burn from the easy-to-get loans during the housing boom, FHASecure can offer some relief.