FHA Loans A Viable Alternative to Conventional Loans
Lower Down-Payment Makes Home Purchases More Affordable
In a little over three years, FHA Loans have experienced a dramatic increase due to higher loan limits, lower home prices and low down-payment requirements. Comprising about 3 percent of the home loan market in 2009, FHA Loans now comprise almost 50 percent of the entire home loan market according to former FHA Commissioner David H. Stevens. These government-backed loans have made home buying affordable for moderate-income buyers who can't afford the typical 20% down payment required with conventional loans. Because the FHA insures the mortgage, lenders may be willing to offer loan terms that make it easier to qualify.
When the housing bubble peaked in 2006, prices skyrocketed above the loan limits, making FHA loans almost non-existent. After that bubble burst, FHA Loans became more attractive because they were less restrictive and offered an alternative method of financing. Whereas a traditional loan for an applicant with a lower credit score might require a down payment of 20-30% of the purchase price, an FHA loan may require as little as 3.5%. In addition, the source of the down payment can be a gift from a relative, employer or government or non-profit agency that offers down payment assistance, which typically isn't the case with conventional loans.
First-time homebuyers can also benefit from having a non-occupant co-borrower. For example, a recent college graduate with nominal credit can have a parent co-sign. When his or her financial situation improves, the loan can then be assumed without refinancing at possibly higher rates.
Another benefit is the increased contribution from the seller. With a traditional loan, sellers are only able to contribute up to 3 percent of the purchase price. However, with an FHA Loan, the seller can contribute up to 6 percent toward closing costs.
There are some eligibility requirements, and FHA approval will depend on thorough documentation of all income. As with all borrowing, loans are subject to credit approval. The terms and rates of the loan will vary depending on each borrower's circumstances.
First Community Bank and Trust is an FHA-approved lender and may be able to help qualified applicants secure financing for the house of their dreams. Anyone interested in FHA financing should contact Assistant Vice President Tim Goldrick at (708) 946-2246 or on his cell at (815) 953-7067.
Financing Subject to Credit Approval