In my last post, I talked about how the FHA loan is now coming to be a new force in the mortgage industy and is filling the void left behind by the “sub-prime” loan crisis. The FHA loan is great for many buyers and people that need to refinance but there are a few things to watch out for. In the Denver Metro where I do most of my business the FHA loan limit is $308,370. So if you are buying a $500,000 house and you have little or no money to put in to the transaction for a down payment, the FHA loan will probably not work for you. FHA sets loan limits according to the county you live in. A good FHA lender can easily look up the loan limit in your county if that lender is a FHA expert.
The next issue with FHA loans is Mortgage Insurance or MI. MI is an insurance policy that the mortgage investor takes out on a loan and it insures that if the borrower stops making the payments, the investor is covered for the first 20% of the loan. The unfortunate part is that the borrower pays the premium as part of their monthly mortgage payment. This amount is not a large part of the housing payment but is is still there. The only good thing about MI is that it allows a borrower with little or no money down to still get loan and the MI is now tax deductible. Another issue with MI is that the FHA loan requires a large portion of the MI is collected up front at the closing. However, this amount (1.5% of the loan amount) is also allowed to be rolled into the loan. This does help in keeping the monthly MI payment lower because some of the MI was collected at the closing.
The Loan Limits and the MI are something that you need to be aware of but there is pending legislation in the U.S. Congress that would raise the loan limits and lower the amount of down payment needed from 3% to 1.5%.
Even with it’s drawback’s the FHA loan is helping many buyers purchase their part of the American Dream without risking everything in the process.
If you have any questions about the pros and cons of the FHA loan. Feel free to contact me and I will be happy to help you.
Written by Mark Afman - Visit Website
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{ 3 comments… read them below or add one }
Larry D. McGee 09.29.07 at 11:36 am
Mark,
Good post. Keep talking about the good loans that are available for first time buyers, and while you are at it, write a post on loans available for single family and condo investors that area looking for a long term hold.
Charles Ward 09.30.07 at 9:41 pm
It always surprises me to hear buyers talk negatively about FHA loans. I believe that FHA loans are good loans and allow buyers who might not otherwise be able to, experience the benefits of homeownership. We live in a great country that offers up the ability to purchase a home of our own even when traditional lending sources say we are not qualified. How could that possibly be viewed as anything but positive?
Mark Afman 10.01.07 at 8:42 am
The only “down side” about the FHA loan, that I see, is the mortgage insurance which of course a buyer would rather not pay but a new law effective an Jan 1, 2007 allows home owners to deduct the MI from their taxes just like the interest. The rates on FHA loans are in the low to mid 6 range and although there is a little more paperwork to the FHA loan it is not something that should prohibit a buyer or Realtor from looking at it as a great alternative.