I have been asked a variety of things about this economic bailout package and I do have my opinions about it. Yet, I have to think of everyone, not just myself. With an eye on the housing market, you should be thinking several things about when it comes to this bailout.

What Is It?

The $700 billion worth of money being put into the current credit crisis has roots in trouble for some people, but to mean, it looks like it could be one of the better choices.

Here’s why.

By putting more security into banks, everyone benefits.

The current mortgage industry is highly tight. Unless you get an FHA loan (which I highly recommend anyway) you are likely to pay much more for a home in terms of down payment and the amount of credit you need to qualify. Yet, these banks, even the ones with the financially sound bottom line are scared and they just are not lending out money to those homeowners that would be a good risk.

The problem trickles down to every one of us.

• Banks do not lend enough money out
• Banks lose money because they simply haven’t lent out enough of it
• Home buyers want to buy homes but have to wait until they have 20 percent down payment
• The houses on the market due to the foreclosure mess sit there, causing all sorts of crime issues and a drop in the local area’s housing prices
• Housing values fall, meaning more people can no longer sell their home as they have upside down mortgages
• The housing market cannot get better: there is just so many variables in this light.

The solution is to shore up the banks and encourage them to keep lending, but only to lend to those who are good investments. I am not saying they should require a down payment of 20 percent (this is just too much for new homeowners currently.) Instead, they should be willing to look at job history, credit scores and other factors.

Let me also say that subprime loans are no good and no, I do not believe that banks in these positions should be given a free handout. I’m especially interested in them paying a sizable amount of interest on these loans from the bailout. Their top execs should not get any of it, of course.

Yet, as someone that knows the housing market needs to heal so the country can heal, the bottom line is clear: encourage lenders to lend.

What You Can Do Now

The good news is that you do not have to stay a victim in this situation. The FHA has home loan programs that can help those who are in need to get the home loan they need. This is not a subprime trap and most importantly you are getting into a good loan. 

FHA loans are the best that I can recommend right now. Unless banks start lending again, it will be hard to get loans from other traditional mortgage lenders. The good news is that the FHA loans available are at good rates.

It used to be common that purchasing a home with little to even no money down was acceptable, especially when you were a first time homeowner with decent or better credit. This “used to be” was in fact just a handful of years ago. The problem is now that lenders are not willing to take on that level of risk any more.

As one of the problems of the current credit crunch, people from all walks of life are finding it more difficult to obtain the loan they need and want to buy a home. The only organization offering any type of mortgage loan under 20 percent down is the FHA. FHA loans with low down payment are becoming the best route for those homeowners who just want to find an affordable solution to buying a home.

Why Creditors Just Aren’t There

Over the course of the last two years, many lenders who typically provide home loans have faced a number of foreclosures on their properties. Some continue to lose money on these properties and are facing an incredible decision: risk losing more money or only lend to those less likely to default.  By requiring a larger down payment, the homeowner is less likely to walk away from their loan since they have a stake in the property. Therefore, these loans are less risky to lenders.

Here’s the kicker: in order for the credit markets and financial markets to get better, the housing market must improve.  In order for the housing market to improve, banks have to lend to borrowers so they can purchase the homes. The cycle is quite limiting and stressful.

What To Do If You Don’t Have 20 Percent

The American family just starting out may have a small amount of money set aside, but most do not have 20 percent for a home. They are struggling to find lenders who will qualify them for a home loan. If you are one of those looking for a home loan with a low down payment, one of the best places to look is the Federal Housing Administration, or FHA.

Here’s how you will benefit from an FHA loan:

• Down payments as low as 3%
• Low interest rates on home loans
• Easier qualifications for home loans than most traditional lenders
• Fixed rates: giving you stability in your repayment terms
• Help even with less than perfect credit
• A variety of programs for those who need help or have unique requirements

As a home loan provider, FHA loans continue to be the best place to go. They are federally backed loans, with a larger amount of flexibility. What is important is to note that the current credit freeze traditional banks are placing on the housing market is unlikely to change right away. But, FHA can help you to get the home you need and want.

Contact a professional to talk about your options. When 20% down is too much, these lenders can help.

Today, the stock market fell, again. How in the world will people make money if they keep losing it? The fact is, the financial markets are horrible and they are shaking even the most seasoned professional investors. So, as an individual with money, where should you put it?

One option you do have is to put the money towards a home investment. Buying real estate now just makes sense. In some areas of the country, the value of real estate has fallen 10 percent, 25 percent or as much as 50 percent. The good news is that the homes are still as highly valued (outside of the financial sense.) Buying a home now can help you safely invest your money. Consider the following.

Let’s say that in your area you invest in a home selling at $200,000. You secure a home loan at 6% through the FHA with a fixed interest rate. You put down $6000, which is the minimum 3% investment the FHA requires as a down payment.  You have a $1200 mortgage payment.

Over the next few years, the home continues to rise in value, as many real estate investors believe that this is the bottom and that housing values will continue to rise. So, in 5 years, at just a 3% gain in value per year, you could have a home valued at nearly $220,000. This would be a low gain, but a safe one.

As you can see, socking your money away into a home loan could make you a sizable profit over the long term. But, even as the market stays well priced, your money is safe. It is not going anywhere. Even if property values fall, you will still be making money in the long term. There is no telling what the future of the stock market is today, but there is only so much real estate available.  It is one of the safest loans.

Do You Qualify?

To get into a safe loan, do consider FHA loans. These loans are the most well priced homes you will find in the coming months. They offer a low down payment. They also provide you with a low interest rate that is fixed for the life of your loan. Those with credit scores that may be slightly low may still qualify for these loans. There are just so many options available.

It is your money and no one wants to lose their money. When you invest in real estate, you do not put your money on the line with investors who may or may not be too scared to allow the stock market to grow. Rather, you have a security at a very low rate. That home you bought for $200,000 was valued at $250,000 or even higher just a year and a half back. As the housing market picks up, it could be back at that level in just a few short months.  For most, this is an option for you.

With all the latest legislation passing through Congress specifically aimed at the housing market, it’s getting not only harder to get loans but more difficult to understand it all.  Luckily, the HOPE for Homeowners Program looks to be one with a basic breakdown.  The program has authorization under the National Housing Act, which was amended earlier in the year by the Housing and Economic Recovery Act of 2008. 

What Does It Say?

HUD issued Mortgagee Letter 2008-29 detailing what this program includes.  First, it gives any current or delinquent borrowers the ability to refinance into a 30 year fixed rate loan through FHA. In order to qualify for this aspect, you must have made at least six payments on the mortgage prior to requesting the refinance. 

Additionally, the program is designed for those who have a debt to income ratio higher than 31 percent with their current home loan.  The original loan must originate prior to January 1st, 2008. 

• Payment to income is limited to 31 percent while debt to income is limited to 43 percent.
• These numbers may be higher, according to the program, following a three-month trial modification put in place through the program first. 
• There is a maximum loan of $550,440 on all loans through the HOPE for Homeowners program, (referenced as the H4H program.) 
• There is also a restriction of a 90 percent loan to value in place on these loans.
• All homes must be owner occupied homes, on one unique properties
• FHA approved appraisers must appraise the properties within three months prior to the closing
• Origination fees are capped at 1 percent
• Buyers do not pay closing costs and prepaid items upfront
• A 3 percent upfront mortgage insurance premium and annual premium up to 1.5 percent will be applicable.

One of the unique aspects of the HOPE for Homeowners program is that lenders must insure that appraisals are complete within the letter of the law.  In other words, they are responsible for any poor or fraudulent appraisals that lead to an FHA insured mortgage.  Inflated home values, considered one of the problems within the housing market crash today.

More Information

The HOPE for Homeowners program promises to offer outstanding opportunities for homeowners to get out of the hole they are in.  Namely, they are able to get into FHA loans with a fixed rate, often lowering the amount they must pay monthly.

The program is available to those who have government loans and conventional prime loans, as well as Alt-A loans and the worrisome subprime loans. This includes most types of mortgages, too, including negative amortization, payment option and interest only mortgages.  There are legal restrictions, for example, any state or federal fraud conviction within the last ten years can disqualify an individual from obtaining the loans.

For homeowners struggling with their current loans, falling within these areas, there is no doubt that the HOPE for Homeowners Program offers a lifeline.  It is highly encouraged that you seek out FHA lenders to get the process started.
 

FHA loans used to be highly avoided by home sellers. Those who were selling their homes often requested only conventional loans because they worried about the complexities of loan inspections. FHA loans are insured by the federal government. That means that the government wants to be sure the value and condition of the home are high enough to warrant the mortgage and that they are safe to live in. The good news is that FHA loan inspections are much less complex than they used to be. The bad news is that you still have to have one to get into a home with an FHA loan.

While that’s the case, don’t worry too much about what goes into the FHA loan inspections. Even with conventional loans, you’ll want a home inspection. You want to know what hidden problems there are with a home. More so, you want to be sure that what you are getting is really worth the price you are paying for it. Therefore, view FHA loan inspections as opportunities to learn about problems you may not have noticed.

What They Are Looking For

What are FHA loan inspectors looking for? Once you apply for an FHA loan and have an offer on the home, the next step is to have an approved home inspector (who is working for FHA, not you, not the lender and not the home seller) come to the home. They will walk around, checking various aspects of the home. Most inspections take only 30 minutes to an hour to complete. You may wish to be present so you can learn of any defects or problems first hand.

There are some problems that they may require repairs to be made on before they will agree to funding the loan. Some potential problems include:

· The home has a defective roof; leaking roofs will need to be replaced or repaired. Age is less likely to be a factor assuming the roof doesn’t have any signs of leaks.

· Chipping paint may be a problem, especially in an older home.

· Handrails may need to be installed on steep steps without them.

· Windows that are broken may be a problem, though sticking or cracks may not warrant replacement.

It’s important to note that the FHA loan inspector that comes to your home is not doing the job of a professional home inspector working for you. If there are problems with the home’s inspection, the repairs will need to be made before the loan can be funded. The home seller often does repairs, but in some cases, the home buyer can do them. Once complete, the loan will move along the financing process.

Whether you’re an FHA expert or just hearing about the program for the first time, brushing up on the FHA Loan basics is always a great idea. Last week Carl Pruitt over at FHA Loan Advice created two fantastic posts about an FHA refinance option, the Streamline 203K. The Streamline 203K - The Basics Part 1 post covers the general aspects of the program, such as the history and qualification criteria. The second segment covers the specific repairs and upgrades for which the 203K can and cannot be used.

Thanks to Carl for two excellent posts!

It looks like I spoke a bit too soon about the end of down payment assistance for FHA Loans. Shortly - less than 1/2 an hour!!! - after my last post, which rang the death knell on DPA, I came across an article informing me that just today - the very day I proclaimed DPAs gone forever - a House panel said “yes” to a bill to bring back down payment assistance. But wait….according to the folks over at the Green Mortgage Group:

The House is expected to pass H.R. 6694, but it will die in the Senate, according to industry lobbyists.

I guess we’ll just have to wait and see….

After a very long fight, down payment assistance on FHA Loans will be eliminated October 1. Although these programs were banned nearly a year ago, the agencies that provide them had fought to keep them around. That officially came to an end with the passage of the Housing and Economic Recovery Act in July. Down payment assistance, which was basically a glorified loophole, was the process where the seller gave the down payment amount to a not-for-profit organization, who would then give that money to a buyer to use for his or her down payment. This would usually result in the seller tacking that amount onto the price of the house, resulting in higher payments for the buyer, and a greater likelihood of default. These intermediary organizations came into existence because the FHA forbids sellers from directly paying a buyer’s down payment. The trouble really began for the DPA organizations back in 2006 when the IRS referred to a few of them as - and this is a direct quote - “scams.”

Now, I understand that there are concerns that this will hurt home ownership rates, but I think just a glance at the sub-prime mortgage mess is enough to realize that a down payment is a critical component of responsible home ownership.

There are certain programs, such as the VA Home Loan Program, that were designed to not have a down payment and have succeeded because the program was structured around that fact. FHA Loans were not. Home ownership must be earned. In the case of VA Loans, it is earned through service to our country. When it comes to FHA Loans, it is earned through saving up a down payment sum that remains lower than those of conventional mortgage products.

Please see my Updated Post for new details.

While the effects of the sub-prime mortgage market mess continue to wreak SERIOUS havoc, FHA Loans continue their positive growth. According to the Baltimore Sun:

Home buyers and refinancing owners nationwide took out nearly 530,000 FHA loans in the first half of the year, 160 percent more than in the corresponding months last year. In the Baltimore metro area, FHA loans skyrocketed from fewer than 2,500 to more than 9,300 - a nearly fourfold increase. Agency officials believe the recent federal takeover of mortgage financiers Fannie Mae and Freddie Mac will only add to its numbers.

The article also points out that FHA Loans aren’t being considered just by first time home buyers anymore. In today’s market, an FHA Loan can be a realistic offer for buyers at many different stages of life.

FHA, or the Federal Housing Administration, is a backbone to our lending industry in the United States. What FHA does is provide lenders with reassurance that the loans they provide as FHA backed loans are safer than those without this backing. Borrowers of FHA programs come from a wide selection of people; including those with less than stellar credit, those looking for the lowest interest rate possible, and people looking for backing from the rocky market. The good news is that FHA loans can be refinanced.

Of Particular Importance

As a homeowner currently, you may be looking for help in getting out of a bad mortgage. It could be that you have had a rate adjustment, or you could be facing other circumstances in which you simply can’t afford the loan you currently have on your home. It is happening to millions in the country right now. FHA is there to help.

FHA will provide refinancing into better loans to qualified buyers. You don’t have to have the highest credit score to get this help, either. FHA is allowing borrowers who do not have a strong credit history but are attempting to make their mortgage payments, help in getting into new loans. You may be approaching your limit and risking default, or you may already be in default. If this is the situation, look into FHA loan refinancing options for you. Many people will qualify for these loans and that means getting to stay in your home long term.

Of particular interest to those struggling with their loans is the FHA’s program: FHA Secure. If you are planning to sell your current home because you are on the verge of facing foreclosure, this is a potential option for you to stay in your home, too.

Who Qualifies For Help?

There are many people that will qualify for FHA Secure, but it is best for those who:

• Have been “good” borrowers in the past
• Have had their mortgage adjust and because of that adjustment are now facing problems making monthly payments
• Are on the verge or actually in foreclosure
• Had good credit but their current situation has ruined their ability to refinance their loan elsewhere through other loans
• Have a maximum home value or mortgage value of $417,000
• Need immediate help, all proceedings from FHA Secure need to be initiated and closed before the end of the year (unless renewed)

Do You Need Help?

Those who are struggling with their current mortgage will want to seek out help through FHA Secure. Even if you do not meet the qualifications for this program, FHA offers various opportunities for help. FHA loan refinancing is an option even if you currently do not have a FHA backed loan. Federally Insured Loans are designed to provide you with the ability to get a lower interest rate. They also help people who otherwise may not qualify for their loan.

If you are considering buying a home, you will not need FHA refinancing, but you may still want to qualify for an FHA loan for your new purchase. Talk with a specialist about the options available to you. These loans are available to a variety of people in a number of different credit scenarios.

As with any loan, you will need to show proof that you can afford the loan. If you are unable to make payments due to lack of employment, you may not qualify for an FHA loan, or any loan. Many people will qualify for this program, even those who do not have great credit.

Find the help you need for FHA loans through FHA Secure or other FHA loan programs currently available.