Let's talk the FHA

From the President

www.ygaor.com

(Updated: Friday, June 20, 2008, 5:39 PM)

What is FHA? How does FHA Help the Homebuyer ?

Federal Housing Administration "FHA" falls within the Department of Housing and Urban Development (HUD) of the U.S. Government. It was established in 1934 and has seen helped millions of people realize the dream of homeownership.

FHA is a mortgage insurer of loans funded by FHA approved lenders. FHA mitigates the risk to lenders by providing security for the loan made. FHA will pay the lender if the buyer defaults on the loan. The benefit to a home buyer is less money down, flexibility in calculating household income and competitive interest rates.

The Economic Stimulus Act of 2008 increased the amount that FHA is allowed to insure. The amount is based on percentages calculated from data of median home prices throughout the United States. The new minimum and maximum amounts are based on the conforming loan limits of Government Sponsored Enterprises (GSE). Many metropolitan areas in California have been allotted the maximum amount of $729,750 for FHA to provide mortgage insurance on approved lender loans.

Foreclosure filings last month were up nearly 50 percent compared with a year earlier. Nationwide, 261,255 homes received at least one foreclosure-related filing in May, up 48 percent from 176,137 in the same month last year and up 7 percent from April. -- RealtyTrac Inc. (foreclosure listing service)

The purpose of including increased FHA loans limits as an element to the overall economic stimulus package is to provide liquidity and stabilization to the housing markets throughout the United States. 2007 and 2008 have been challenging years for the housing and credit markets.

In California the increased amount available to home buyers is significant because our housing affordability continues to be a challenge in many areas. Currently FHA only requires 3 percent as a down payment versus conventional lenders that are looking for 10-30 percent down depending on the buyer's loan qualification and type of loan. FHA loans are paperwork intensive compared to conventional loans that one would get from a bank directly. If you are looking to refinance your home then FHA requires less equity then a traditional lender. It's even possible to refinance or purchase a home with less than optimum FICO scores. Even with more flexibility a person must go through a qualification process with FHA.

The value of FHA as a buyer's option has also risen due to the financial challenges of credit markets. If a buyer, or owner looking to refinance, doesn't fit within the stringent guidelines of the lender then the loan won't be approved. "Reports from the 12 Federal Reserve districts suggest residential real estate markets remained weak in most areas during the second quarter, with tighter credit standards reported for most loan categories. Unsold inventories of new and existing homes remained at unusually high levels in most areas, causing further price drops, especially in parts of California, Arizona and Nevada that also have seen sharp increases in home foreclosures. Scattered reports pointed to a recent pickup in home sales, which was attributed to increased affordability due to lower prices." -- Inman News Even with the recent lower housing prices affordability continues to be a real issue in California.

In January 2009, FHA's maximum loan limit will return to $362,790, unless the U.S. Congress approves bipartisan legislation to permanently increase loan limits as part of the FHA Modernization bill, which is still awaiting final approval on Capitol Hill. - FHA Web site While California is seeing more affordability in housing, it still remains one of the most expensive places to buy in the United States. Increased FHA loan limits has been a significant contributing factor to being able to capitalize on the recent changes in affordability, and giving more families the ability to become homeowners.

This legislation may not affect you today. It may in the future. Life has a way of throwing curve balls even to those that are prepared. If you are a young family this could be the difference needed to become a homeowner. Maybe you are in an adjustable rate mortgage and want to look for other financing options. FHA could be the answer. Owning a home in California is hard enough given our prices. Making FHA loan limits permanent at the current increased amounts is necessary for the residents of California.

Melanie Barker
Realtor
Yosemite Gateway Assoc. of Realtors
www.ygaor.com