The Federal Housing Administration (FHA) has seen a surge in demand for its loan products as the cost of other non-FHA loans have increased and their availability has diminished dramatically. So an FHA loan may be the best option for anyone buying or refinancing in 2009.
Whereas private banks and mortgage companies were throwing money out the door two or three years ago to help people buy homes, now they have substantially tightened their purse strings. Down payment requirements are bigger, credit and income is severely scrutinized, and home equity lines of credit and second mortgages are being curtailed. Meanwhile, the FHA is assuming greater responsibility for helping Americans find unusually affordable loans at attractive interest rates, and the agency even has special products designed for those who want to buy a home and have enough cash leftover to do repairs, improvements, and upgrades.
Here’s how the FHA works, and why their mortgages may work nicely for anyone wanting to buy or refinance during the uniquely challenging economic climate of 2009:
The FHA does not actually make mortgages, but it insures them in order to give reassurance and financial support to those who do make loans directly to homeowners. In other words the FHA makes it less risky for lenders, which is a powerfully beneficial service at this particularly nervous time in our nation’s financial history. When a lender makes an FHA approved loan, they get guarantees that if the homeowner defaults the FHA will pay the lender in the form of a mortgage insurance claim. Because of this added perk, lenders are then able to extend unique bargains and benefits to borrowers, and that is why FHA loan products may be the best available option for anyone wanting to buy or refinance a home in 2009.
FHA loans fell out of favor during the last real estate boom, because mortgage companies were offering other irresistible deals. Lenders pushed no-money down loans, sub primes with ridiculously low interest rates, and mortgage refinances that allowed borrowers to finance as much as 125 percent of the value of their property. Of course those easy money products backfired, triggering the worst loan crisis in history. Now that people have come back down to earth and are seeking solid and predictable loans instead of exotic and incomprehensible ones, FHA loans are becoming some of the most popular mortgages of all. Between 2003 and 2006, the FHA was involved in less than four percent of home loans. But this year it is predicted that the FHA will back as many as 25 percent of America’s mortgages.
Also, until recently, FHA loan limits were capped so low that they were not able to help anyone trying to buy a slightly more expensive home. But now the FHA is authorized to insure mortgages of up to $625,500, which means that almost anyone can rely on an FHA loan to make their purchase.
FHA-insured loans offer many benefits including:
· Low Cost: The FHA has always offered competitive interest rates on dependable products including 30-year fixed rate loans and sensibly structured adjustable rate mortgages.