Understanding FHA

After years of being a small player in the home mortgage business (less than 3% of home loans placed in 2006,) the FHA is being positioned by the Federal Government to be the “key” player in implementing whatever legislation are passed focusing on the foreclosure debacle.

Over the last number of years, FHA loans fell out of favor as a well understood and utilized loan program, as other lenders offered loan programs with less stringent requirements. Times have changed.

Our goal is to help you understand what FHA loans are, their restrictions and requirements and how to apply this knowledge in your business.

The Federal Housing Administration (FHA), which operates within the Department of Housing and Urban Development, was established for the purpose of securing home loans through mortgage insurance that it offers home buyers as well as lenders.

The main focus of this program has been to aid the 1st time homebuyer and individuals that might not qualify for a conventional loan because of credit score or minimal down payment requirements. One advantage that FHA loans had was that they did not differentiate their charges for mortgage insurance based on credit scores. This benefited borrowers with lower equity in their home and credit scores under 620.

This past week, FHA announced that effective July 14, it will introduce risk based pricing. This change will require upfront mortgage insurance premiums based on a borrower’s credit score and down payment. These changes are similar to those announced by Fannie Mae and Freddie Mac earlier this year as a method to mitigate their risk.

As you have seen over the last number of months, these government agencies, including Fannie and Freddie, are struggling to provide a safety net for home owners. Our goal is to continue to provide you with current information on these changes and the effect on the real estate markets.