FHA: It’s Back!!
After a few years of hiding, FHA financing appears here to stay and may be the only option for many prospective homeowners and homeowners looking to purchase or refinance. With PMI companies raising their standards and lowering the LTV that they will insure, the private lending markets are requiring ninety-seven percent loan-to-value or better in order to qualify. What does that mean to you? No longer can you purchase a home or condo with a conventional mortgage without putting at least three percent down of your own money (three percent down for a home and five percent down for a condo). Although FHA does require the same three percent down there are currently loop holes and legislation going through Congress to lower that amount.
As it stands right now FHA requires a down payment be paid by the borrower, but it may be paid with money received as a gift from a family member or a charitable organization. The charitable organization part of that last sentence is what has allowed and continues to allow home buyers to get into an FHA mortgage without putting any of their own money into the transaction. Through “charitable organizations” such as Ameridream and Neamiah, the seller makes a three percent “charitable contribution” in the name of the buyer and pays a small processing fee (which is how the companies make money) and then the “charitable organization” contributes to the purchase of the home with the three percent down payment to the buyer. This has been used for a number of years now and has really been the only saving grace for FHA through the years of unlimited zero down loans from the conventional mortgage market. During the real estate boom years of the early 2000’s even this was too much of a hassle and wasn’t worth the four or five hundred dollar processing fee, let alone finding a seller that wanted to contribute that three percent. Amazing how things have changed….
In 2008 sellers are willing to do what it takes in order to get a buyer into a home, including but certainly not limited to contributing three percent towards the buyers down payment. On top of this three percent down payment many sellers are willing to contribute another three percent towards closing costs as well as pay the processing fee. The builders have been using this quite a bit to continue to sell homes in this tough market to first time home buyers who have little to no money down. As the credit markets continue to crunch, it remains to be seen how congress and private lending will react, but one thing is for sure: FHA is one of the best options, if not the best option, for buyers with little to no down payment.
Troy Marsh, E-Pro & ABR
Lead Buyer's Specialist & Listing Partner
The Gold Key Experts
Keller Williams Capital Partners Realty
614.750.2144 - Direct