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FHA loans regain appeal

With the nationwide housing downturn and credit crunch in full force, it might be time for home buyers and owners to learn more about a federal mortgage program launched during the Great Depression.

Loans insured by the Federal Housing Administration fell out of popularity in recent years as subprime mortgages and other financing became readily available and as home prices zoomed past the program's limits.

But with mortgages now much harder to get and the maximum FHA loan size sharply increased by recently passed economic stimulus legislation, the program is enjoying a revival.

What are FHA loans? How do they differ from other types of mortgages? How do you know if you are eligible? Here are some answers:

What's an FHA loan?

It's a mortgage insured by the Federal Housing Administration. It can be a fixed-rate loan or an adjustable loan. The FHA does not insure nontraditional loans such as "payment option" adjustable-rate loans. The agency also requires verification of your income and assets and a full home appraisal to make a loan.

Don't most lenders require verification of income and full appraisals?

They once did — and are increasingly demanding them now. But, for many years, many lenders offered "low doc" and "no doc" loans, meaning that instead of full documentation, they essentially took the borrower's word that he or she had enough income to make your payments.

The FHA requires tax returns and pay stubs to verify income.

As for appraisals, a lender making an FHA-insured loan must use an FHA-certified appraiser who will walk through the house, taking notes and measurements before estimating its value.

What about down payments?

FHA loans were originally intended to help first-time home buyers, so the down payment requirements are flexible. But now lenders are generally requiring at least 10 percent down and may try to ensure that you're using your own money for the down payment.

What if you don't have great credit?

The agency takes your credit history into account but is willing to consider "cry letters" explaining negatives in your credit report, said Jeff Lazerson, president of Mortgage Grader, a Web-based loan shopping service.

What's the largest FHA loan available?

Go to https://entp.hud.gov/idapp/html/hicostlook.cfm and plug in your county and state.

Who shouldn't consider an FHA loan?

People who are borrowing less than 80 percent of their home's value can probably get a better rate outside the FHA program.

FHA loans regain appeal 05/03/08 [Last modified: Thursday, October 28, 2010 1:29pm]

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