Archive for December, 2008

What Is The Federal Housing Administration?

Tuesday, December 23rd, 2008

You are likely hearing a lot about the FHA, or Federal Housing Administration. They have become the backbone of the housing market currently and likely will continue to play a significant role until the economic crisis and financial markets free up. This is a good thing since the FHA has a long history of providing stability in the American housing market. They could be the resource you need to get into a home loan.

While this blog is about the FHA and loan available through it, it may be important to take a step back and find out who this organization is and why they are even around.

The FHA was created by the National Housing Act of 1934. It was created during the Great Depression, as a way of helping to support the American people in finding loans to borrow money to buy homes. The goals of the organization are specific:

• Improve housing standards and conditions
• Provide home loan financing through an insurance program for mortgage lenders
• Stabilize the mortgage market

During the Great Depression, the banking system had fallen and home loans availability was next to nothing. People could not afford their homes. When the banks failed, any mortgages out during that time (which ere shorter term and had no amortization) were called due. This caused many homeowners to foreclose on their homes for lack of funds to pay back the loans. When the Federal Housing Administration was created, its initial goal was to help regulate the interest and terms of the mortgages. Now, more people could afford a down payment and the monthly payment of their loan.

Over the last 70 plus years, the job of the Federal Housing Administration has changed somewhat, but in most terms, it still has the same job of stabilizing the housing market, specifically in terms of the availability of loans to buy homes.

Today’s Job

The FHA provides a level of insurance protection for the commercial lender. You borrow an FHA approved loan through these commercial lenders. They agree to charge you a lower rate of interest for this protection. If you default on the loan, the lender is able to get a payout for your loan.

The FHA has become one of the backbones in the housing market right now and will continue to be so. Home ownership is one of the most important factors of success in an economy. This is why so much attention is being placed on this department of the government right now. To right the economy, the housing market has to stabilize.

If you are interested in getting a home loan, find out what FHA loans are available to help you accomplish this.

New Administration: What This Means For HUD

Saturday, December 20th, 2008

President-Elect Obama announced that he would appoint Shaun Donovan to head up Secretary of Housing and Urban Development, or HUD. HUD is an important part of the mortgage industry, indirectly. This department is responsible for the housing within the country. In this administration, during this economy, this new Secretary will need to find ways to jumpstart the housing market to help individuals find the homes they need.

In his radio address on December 13th, Mr. Obama said this about the housing market: “To end this economic crisis, we must end the mortgage crisis where it began.” He continued, “This all started when Americans took out mortgages they couldn’t afford. Some were reckless, aware of the risks they were accepting. But many were innocent, tricked by lenders out to make a quick buck.” Later, he added, “This is deeply troubling. It not only shakes the foundation of our economy, but the foundation of the American Dream.”

Later in his broadcast, he mentioned that one in ten homeowners face some level of stress in regards to their homeownership.

What This Means To You

Depending on who you are and what your circumstances are, there is hope available. While the new administration will likely put in place programs to continue to support the housing within the country, there are many programs already in place to help struggling homeowners. Those facing foreclosure or the risk of getting behind on their mortgage should take the time now to contact an FHA loan specialist. Determine what your options are, including programs like HOPE for Homeowners and easy refinancing options already in place.

What about those who are looking for a home to purchase? Are they safe to buy? Many of the predator lenders are gone. They have lost their funding since investors are no longer willing to gamble with high risk mortgages. It is safe to borrow money. Commercial lenders are actively seeking borrowers who are qualified to borrow. Interest rates are very low and FHA loans are readily available to help those who are able to make payments to get into homes.

While you may not be able to improve the economic crisis fully, you can improve your financial security by considering new loans now. Home prices are low. Home interest rates on loans are low. Programs are in place for refinancing quickly and affordably. Determine if you qualify for a home loan through an FHA specialist. You may be happy to learn there are so many options available.

Can FHA Loans Help You Qualify For A Home?

Thursday, December 18th, 2008

As a potential homeowner may find it difficult to qualify for a home loan in the current real estate mortgage market. With credit markets moving in every direction, it becomes very important for those who may want to buy a home to make wise decisions. FHA loans could be the way that people get into the homes of their dream homes, safely.

Today, the FHA helps to provide insurance backing for more than one third of all homes in the United States. Just a handful of years ago, few people took advantage of these loan programs. Many saw them as something for people who were non-creditworthy. Yet, this is no longer the case. In fact, it is safer to get your home mortgage loan through these FHA programs than it is to get your loan from other methods. In addition, it may even be less expensive.

Are FHA Loans The Only Option?

Much of the credit market’s liquidity has dried up. In many situations, it has become difficult to obtain these loans. Regardless of what is happening to help encourage banks to lend, it will still be likely that only well qualified individuals will be able to get affordable home loans through conventional loans. These loans are available, but there are fewer of them receiving approval than ever before.

FHA loans are more readily available. While they are not the only game in town, they definitely are becoming the most accessible option. In some markets, 60 to 80 percent of home loans are now FHA loans. These government backed loans are simply safer for the investor. They provide a bit of extra leverage for the investor to get back some of his money should you default on your home loan. Many of these investors have been burned by the recent foreclosure mess. They want protection for their investment. FHA loans provide this type of protection.

It is important to note that FHA loans are not government loans specifically. The government does not lend to borrowers. Rather, they provide a level of insurance to the commercial lender. You will still get your loan through a commercial bank. The only difference is that there is an insurance protection for the lender. If you default, the government will refund the lender up to a certain point for their loss. This reduces the risk of the lender.

FHA loans are a good option for many homeowners because of lower interest rates. Yet, until the housing market strengthens and the credit markets thaw, these loans are going t be the biggest game in town.

Why FHA Loans Are Cheap Home Loans

Saturday, December 6th, 2008

FHA loans are loan insured through the Federal Housing Administration.  These loans are not held by or funded by the FHA, but rather funded by commercial lenders (they must be approved prior to providing these loans.) What makes them different is that the lender is able to take an “insurance policy” out on the loan. If the borrower of the loan defaults, the lender is able to recoup some of their invested money by selling the property and by collecting an FHA insurance payment.

What Does This Mean To You?

As you take into consideration how the FHA works, consider how it affects you, the individual hoping to purchase a home in a troubled economy. There is no doubt: now is the time to buy especially if you have a good credit score, a down payment and want a good deal. Home prices are at much lower prices than they were just a few years ago. But, what if you want to save even more money on your home loan purchase?

To get cheap home loans, consider FHA loans. Because these loans have an insurance policy on them, of sorts, the lender is less at risk of losing their investment in the loan. With the opposite type of loan, a conventional loan, there is no guarantee that they will be able to make up this cost. Even if they foreclose on the property of a default borrower, they still take thousands in losses.  To the lender, the risk of an FHA loan is lower and therefore they are not as worried about the loan. In return, interest rates are lower.

Lower Risk = Lower Interest Rate

There is no way to know what your interest rate will be until you apply for or at least talk to an FHA loan specialist. You are likely to get a far lower interest rate with an FHA loan than you would if you obtained a conventional loan.

Where’s The Catch?

Many people fear a catch. What is behind this type of loan? You still have to qualify for the home loan. You still have to have a down payment for the home loan, but it is far lower than those f conventional loans. You do have to have a decent credit score. The days of having a very low credit score and no down payment and still getting a home loan are gone.

Nevertheless, FHA loans are solid investments. They can help more people to qualify and they are, by all accounts, the cheap home loans you are looking for.

Mortgage Lending Freeze Makes It Difficult For Self Employed To Get Home Loans

Tuesday, December 2nd, 2008

While there are many proposals in the works to help the ailing mortgage industry, one group seems to still be struggling to get into a decent home loan even with good credit. That is the self employed. Mortgage loans have always been somewhat difficult to get if you do not have a standard job, but the current trends seem to make it a bit harder.

Are You Self Employed?

The credit markets are starting to thaw and that means that more people are able to qualify for home loans. Those that are self-employed are still struggling to get the same treatment.

Self employed individuals, such as doctors, attorneys, small business owners and even accountants, may have good or better credit and a sizable back account, but without that steady paycheck, many lenders have shied away from loaning to these individuals. The problem is the lack of a W-2, the document that most people get in the mail at the end of the year stating that they worked for a company and earned a set amount of money. Rather, self employed individuals seeking a home loan will need to use an income tax return instead. Tax deductions that many of the self-employed receive often lessen the income, too, making it harder to prove that they do make enough to afford a home loan.

What Can You Do?

If you are in this position, where you are struggling to get a home loan because you are self employed, you may qualify for FHA financing. The FHA provides more flexible terms for borrowers. There are still specific goals that need to be met, including minimal down payments on the home and a decent credit score. Yet, the FHA loans are often easier to obtain for those who have trouble proving their income. These loans can be the best opportunity for individuals who may struggle to qualify for other types of loans.

According to some lenders, credit is the most important factor in obtaining a home loan. Yet, for the self employed, even high credit scores (in one case a woman was denied a home loan even though her net worth was three times that which she was requesting and her credit score ranked in the high 700’s) can hold you back. Proving to lenders that you are a good credit risk can be tricky, but it is something you must do.

FHA lenders can help you to avoid some of those obstacles. You still need to show income proof and you will need to be qualified for the home loan. FHA requirements are much lower. You will still need to meet qualifications including:

  • 2 years worth of income tax returns
  • If you have less than one year of self employment income to prove, you may not be eligible without some other proof of employment prior to this
  • Federal business income tax returns for the last two years, for all corporations of “S” corporations and all partnerships
  • Profit and loss statement and balance sheet showing your income
  • A credit report from your business, in some cases

The FHA lender will need to take your income over the last two years (which you need to have proof of,) and will average it over that time. Provide them with additional information, such as income growth patterns over the last months. A detailed letter explaining expenses as well as any fluctuations in income is important.

With a good credit score, there is help for those who do have the need for a home loan even if they are self-employed.  FHA specialists can help you to qualify for these loans.