What is an FHA loan and why are they HOT???

11/24/2008 FHA Update:
-Down payment is now 3.5% (was 3%)
-Minimum FICO score is 580

The FHA was created in the ashes of the Great Depression to boost home buying, but over the years its influence waned. Fannie Mae and Freddie Mac took over market share in part by backing all sorts of risky products such as no-money-down, interest-only loans that required no proof of income.

In contrast, the FHA, an arm of the U.S. Department of Housing and Development, requires borrowers to jump through at least some hoops, such as verifying income and submitting income tax records.

Loan amounts are capped at different amounts, depending on the region. In Los Angeles, the limit was raised in March to $729,500.

The FHA does not directly make or hold any loans, but instead offers insurance to lending institutions. If a mortgage goes into default, the FHA will take it off the lender’s hands.

To help cover the cost of this protection, the FHA charges borrowers a flat upfront fee and a smaller monthly fee. In July, the FHA began charging different upfront fees based on an analysis of the borrower’s risk — 1.25 percent for lower-risk borrowers and up to 2.25 percent for riskier borrowers.

The FHA requires a 3.5 percent down payment, compared with 20 percent for some conventional mortgages. The FHA also doesn’t require a minimum credit score, though some lenders have minimum standards in place.

On top of that, the government has substantially increased the amount of money that can be borrowed through FHA loans and — for the first time — is allowing homeowners who are behind on their monthly payments to refinance through the FHA.

As a result, the popularity of government-backed loans is soaring.

Nationally, the FHA is insuring more than $24 billion in mortgages a month, up from about $6 billion a month a year ago, a figure that includes purchases and refinances.

All of a sudden, FHA has come back in a big way and is a much bigger piece of the pie.
Please contact me or my Lenders Dean Wong and Dave Campbell (please tell them I referred you) for any questions you may have about these loan programs.
My Site: www.LAexclusiveProperty.com