What Is An FHA Loan And Why Are They So Popular?

FHA does not make loans. Rather, it insures loans made by private lenders. The first step in obtaining an FHA loan is to contact several lenders and/or mortgage brokers and ask them if they originate FHA loans. Believe me, In this market you will be hard pressed to find a lender who does not write FHA loans. It is a no brainer for the lender. They write the loan, have it insured by the FHA and still get to charge interest and fees for writing the loan. If the buyer defaults on the loan they are covered.




Most lenders are requiring 10% down plus a credit score of at least 650 plus the closing costs. On a $300,000 home that is $30,000 down plus around $18,000 closing costs. How many first time buyers do you know with $48,000 available? The interest rate is around 5.25 right now and you would also have to pay PMI insurance that insures the lender gets his money if you default.



If you qualify for a FHA loan you only need 3.5% down and can finance some of the closing costs. On the $300,000 home that is around $10,500 for the down payment and $9000 if you finance half the closing cost for a total of $19,500 versus $48,000 for a conventional loan. If you have strong credit you can also beat that 5.25 interest rate and eliminate the PMI insurance since the FHA is insuring the loan.



FHA has more than doubled the number of mortgages given in the last three years and is now 30 percent of the

housing market’s mortgages. In 2007, FHA issued 400,000 loans and last year, two million were issued.

This trend is evident throughout our three local counties; Chester, Delaware andMontgomery. In 2009, 28.7% of homes purchased in these three counties used FHA

financing. Compare this to only 5.3% who used FHA financing in 2007 in this same area.



FHA had a reputation in the past for causing headaches for the sellers with a seperate inspection but they have eased up on some of their requirements. A typical home inspection is much more thorough than an FHA one. FHA just uses a checklist while a home inspector goes over the home from top to bottom. We have not seen any deals broken down by an unreasonable FHA home inspection.



I hope that clears up some of the confusion surrounding an FHA loan. Please contact us if you have any questions.



Century21 Alliance

Jim & Deborah Brady Realtors

Licensed in Pa #RS276048

Office: 610-853-2700 Ext. 416

Direct: 610-853-8416

Cell: 610-613-3381

Fax: 610-853-4835

Website: http://www.bradyhometeam.com



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