New FHA loans are more accessible to buyers

Fri, May 2, 2008

By LINDSEY ADKISON

The Brunswick News

The Federal Housing Administration has always been an important resource for home buyers. Created in 1934, the government agency was designed to help homeowners finance their purchases.

In the current economy, the FHA is continuing to play a key role in helping Americans realize their dreams of home ownership.

Bo Russell, vice president of Somerset Mortgage Corporation on St. Simons Island, says that the programs offered by the FHA are important to many who are trying to get back on their feet.

"It (FHA) is actually a mortgage insurance program administered by a government agency, but funded entirely by the participants. The mortgage insurance is for the private lender's benefit," he said. "If they lend money to a borrower who defaults on an FHA loan, they receive an insurance premium from the FHA. This premium offsets the additional risks they take by accepting FHA Underwriting Guidelines."

As many other loan programs are falling by the wayside, FHA remains a dependable source of funds, Russell said. Now the FHA is easing loan standards, which will aid borrowers facing financial difficulties.

"The sub-prime and Alt-A industries are completely gone. Most may say, 'good riddance,' but in reality these provided loans to people who were having trouble getting qualified, especially people recovering from a past credit wreck brought on by things such as a medical emergency or death or divorce," Russell said.

The loans leave room for down payment assistance, such as sellers covering closing costs. That allows buyers to pay nothing up front. Credit score requirements on FHA loans are also considerably lower than those on conventional loans.

Buyers in the midst of a Chapter 13 Bankruptcy can even apply for a loan, as long as they have paid for 18 months on their bankruptcy timely and have not acquired any additional late payments on their credit report. Plus, FHA allows non-occupant co-borrowers, so family members can co-sign to help first-time homebuyers.

But recent changes in FHA procedures are making getting a loan even easier for buyers.

Ozzie Landrau, mortgage banker with Ameris Bank on St. Simons Island, says loans are now more efficient and affordable.

"Before, when doing a FHA loan, the homes went through a tedious inspection period. While it's always a good idea to get a home you're about to purchase inspected, you now have the choice whether or not you want to pay up front to get the home inspected; and if you do, you can choose what things you want fixed and what things are cosmetic," Landrau said.

"The only requirement the home must have through FHA is heating and air and, of course, safety issues must be addressed," Landrau said.

Another change is the time it takes to get a loan. Previously, an FHA loan could take between 45 to 60 days, but due to the streamlining FHA is undergoing, most FHA loans can close in two weeks.

"One of the most talked about changes in the FHA insured loan programs is the increased loan limit from $209,000 to $276,250 in Glynn County. This was part of the economic stimulus bill passed in February. It was meant to be temporary, until December 2008, but Congress is working to make this permanent," Landrau said.

There is also a FHA reform bill in the works in Washington that is looking at even more changes. For example are 40-year loan terms that would equal slightly lower payments, 100 percent financing with no down payment needed and risk-based mortgage insurance premiums, instead of the one standard calculation.

"These changes are happening for two reasons," said Landrau. "First is to provide safe loan alternatives and make home ownership more accessible since the collapse of the subprime lending market. Second is to give homeowners easier more affordable refinance loan options that otherwise might be facing foreclosures."

Many Realtors are excited to see these changes.

Conrad Unnerstall, Realtor with Chapman Realty, says buyers should take advantage of the new FHA loan requirements.

"It gives opportunities for buyers to own a home that they could not otherwise. So many buyers think they need so much money down, when with FHA you can actually close with no money down with down payment participation from a non-profit organization and seller contributions to closing costs and prepaid items," Unnerstall said.

"With no money down and easier credit terms, this allows more buyers to quit renting and start owning. And with the new loan limits, it allows buyers in more price ranges to qualify," he said.

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