LOS ANGELES—It used to be that if you didn’t have enough money for a down payment to purchase a home, you were out of luck. Families would have to wait years before they could save enough to make a down payment for a new home.
Thankfully, those days are long gone. Today, you don’t need to make a big down payment thanks to the Federal Housing Administration Home Loan Program. You still need to have a decent credit score and steady income to qualify, but the good news is that many today are taking advantage of this outstanding program.
So much so that if it weren’t for FHA loans, the real estate market would have been on life support at the height of the recession just a few of years ago. In fact, it was responsible for nearly all of real estate transactions at the time. And today, it’s spurring the market’s continuing rise.
If you’re a first-time homebuyer, this program is geared for you. You don’t need to have perfect credit or a lot of money in the bank for a down payment. The typical FHA loan generally requires a 3.5 percent down payment, instead of the 20 percent required by most lenders. Under FHA rules, those paying less than 20 percent down payment and over 15-year amortization are required to pay mortgage insurance premium every month as part of the monthly payment.
But it’s still a great deal for borrowers. To me, it’s a gift from the government because they’re taking all the risk and in turn it’s almost zero risk to you and you’re getting your own home for a fraction of what you would have had to put as a down payment.
It’s the whole reason why potential buyers have made FHA loans so popular, making it one of the best and most profitable government programs today. It’s part of the reason why the program has been increasing its requirements in recent years, allowing the government to funnel much of that revenue toward other programs.
It used to be that you would only pay the mortgage insurance premium for five years, but under new guidelines that recently went into effect, the Federal Housing Administration requires you to pay the premium for the life of the loan.
But again, it’s still a great deal. With an FHA loan, you can get loans for up to $729,750 with a 3.5 percent down payment. Conventional loans through mortgage companies top out at $625,500 with 20 percent down. Loan limits vary by state and counties to be sure, but here, if you qualify, you can borrow the maximum.
The requirements for FHA loans are many. Here are a few:
- They are only for homes used as primary residence.
- Your mortgage payment, property taxes, mortgage insurance, home insurance and home owners association dues must be less than 45 percent of your gross income.
- Your minimum credit score must be a minimum of 580 for maximum financing.
- You must have a steady work history or have worked for the same employer for at least the past two years.
- Must have a valid Social Security number and be a lawful resident of the U.S.
- Must be at least two years out of bankruptcy and three years out of a foreclosure with a re-established good credit.
These days, it’s important to examine all your options when it comes to financing and I believe there is no better program for potential home buyers than the FHA if you have less than 20 percent to put down. The benefits are enormous for you and your family. So consult with your real estate agent and learn more about it to see if you qualify.
David Rosenfeld is a Real Estate broker and president of Advantage Real Estate, a Real Estate and investment firm in Santa Monica, and a Rotary Club member. He has more than 20 years experience in commercial and residential property investments and financial counseling. He can be reached at 310 450-4488, at firstname.lastname@example.org at www.advantage-realestate.com.
By David Rosenfeld