FHA

     FHA stands for the Federal Housing Administration.  In California, as of June of 2007, FHA loans accounted for less than 2% of all loans originated.  There were exotic loans available, such as the 80/20 combo loan, where the borrower didn't have to put any money down, and due to having a first mortgage for 80% of the purchase price and a second mortgage for 20% of the purchase price, you could deduct the mortgage interest for both loans on your tax return without having to pay the than dreaded PMI (private mortgage insurance) which didn't used to be deductible, but now with income limitations and quaifiers is deductible.

     Now the 80/20 has gone by the wayside as part of the mortgage meltdown, however now as of October of 2008, FHA loans have made a dramatic comback and were over 55% of all mortgage originations in California.

     Why? Because you only need to put down 3.5% to buy a home, and if you are looking to refinance, you could get obtain a loan for up to 95% of the appraised value, and still pull cash out at the same time.  Throw in a CHDP 3% second mortgage, and you may only have to put down .50% (this program has limitations). Click here to learn about the CalHFA CHDP second mortgage which can be combined with an FHA first mortgage.

     Fannie Mae and Freddie Mac loans now require a 10% minimum downpayment when purchasing a home, and most lenders require you to have 20-25% equity in your home before you can pull cash out.  Due to these new restrictions, FHA has become the better deal for consumers.

     FHA loans are strictly fully documented, (no stated income) and as stated above, you will be required to pay PMI, or MIP.  MIP, mortgage insurance premium, which is paid monthly,  that you pay that protects the lender in the case of your loan going into default. You will have to pay a portion of the insurance upfront with your closing costs when purchasing or refinancing, and than pay it monthly along with your principle, interest and taxes and insurance all in the form of a monthly payment.

    In comparison to Fannie Mae and Freddie Mac, FHA now has looser guidelines for mortgage lending.  FHA is looked at as the "new subprime loan", even though it has been around for decades.

    FHA programs allow credit scores as low as 620 (some lenders may require a 680 credit score), and will allow non-occupant co-borrowers to help qualify for the loan.  Fannie and Freddie minimum credit scores are 680 and will not allow non-occupant co-borrowers to help qualify. The rates are higher on an FHA loan vs. Fannie Mae and Freddie Mac, but usually not more than .25%-.50%. 

    If you want to see if you qualify for an FHA home loan feel free to send me an e-mail or click here for to fill out a quick questionairre and I'll call you back within 24 hours.

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