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Prior to 2007, FHA comprised about 4% of the total loans originated each year.  Since the meltdown in Subprime loans that began in the Spring of 2007 and the resulting 50% contraction of available mortgage products, FHA loans have become a much more significant source of mortgages.  Depending on the particular lenders, FHA loans are between 40% to 50% of all loans originated.

FHA loans have increased in popularity because of several unique features.  They are:

1)  FHA loans are now the best option for first time home buyers who have limited funds for down payments.  FHA loans are presently the only loan program which will allow the Seller to contribute 3% (plus a small fee) of the purchase price to a non-profit charity that then gifts the 3% back to the Purchaser.  This is effectively 100% financing, or a loan with no down payment.  FHA is trying to eliminate this option thru legislation but Congress is resisting as Congress tries to get real estate lending back to previous levels.  FHA is developing a 100% financing program that will likely replace the non-profit gift program.

2)  FHA loans are compatible with Affordable Housing Programs offered by counties and municipalities.  Some of these programs in Colorado will lend up to $10,000 to borrowers at no or very low interest rates.  These funds can be used for down payment and closing costs.  Affordable Housing Programs are available along the front range of Colorado.  A Google search using the key word "Colorado affordable housing programs" will provide the reader with information.  A word of caution, these affordable programs have income limits as defined by HUD.  One can locate these income limits by going to http://www.huduser.org/datasets/il/il07/

3)FHA loans can be underwritten to credit quality A- as opposed to conventional loans which are always A or A+.

4)  FHA loans are not underwritten based solely on the borrowers credit score.  FICO score is a consideration and, depending on the lender, may be as low as 580.

5)  FHA loans have lower rates for mortgage insurance.

6)  FHA loans can be assumed.

7)  The loans are generally priced better than conventional loans.

FHA loans come with mortgage insurance which is called a mortgage insurance premium or MIP.  There are two forms of  MIP.  There is a one-time up-front payment of 1.5% of the base loan amount.  This is added to the base loan and the results a Loan-To-Value of greater than 97%.

The second form of MIP is a monthly payment which is .5% of the base loan.  On a $200,000 base loan, the monthly MIP would be $83.33.

FHA has gone to a risk based insurance premium so these insurance rates have changed; higher premiums for A- and lower premiums for A+. Presently, the new risk based premium will be suspended on October 1, 2008 for a period of one year period.

Another advantage, and this is a major benefit to FHA loans, is they can be refinanced without the borrower qualifying again.  This is called a streamline refinance and the borrower only has to prove that he/she has made the last 12 months of payments "as agreed" in order to qualify.  The theory is that if a borrower can make on time payments at one rate, they can certainly make on time payments at a lower rate.  Also, the streamline refinance is normally done as a no cost loan.  There are some detailed rules if a borrower is going from an ARM to a fixed payment or vice versa.

Most loan programs are complicated and detailed and it is recommended you call to discuss your situation.

 Please call the author of this article (Mike Cotter toll free at (877) 656-8522) to discuss in detail the particulars of your loan and possible interest rates.  Or you may also go directly to the APPLY NOW button located at the top of this page.