FHA Home Loan Changes From The Housing And Economic Recovery Act of 2008

FHA Home Loans have been around since the 1930’s and have afforded millions of Americans an opportunity to fulfill on the American Dream to own a home. Changes in how to qualify for a FHA loan come and go.

Similarly, changes in who can qualify have also come and gone. Recently, there have been more changes to who can and how to qualify for an FHA mortgage caused by the recent passing of the Housing and Economic Recovery Act of 2008 signed by President Bush on July 30, 2008.

First of all, while there have been some changes in how a home buyer must qualify for a FHA loan program the basic qualification guidelines for FHA mortgages remain the same. The FHA Housing Program is still designed to promote affordable housing and home ownership for all people in the U.S. who are eligible to buy a home.

(These are or will be in effect as of Oct 1, 2008)

• Down payment assistance programs like AmeriDream and Nehemiah can no longer be used



• 3.5% is now the required down payment versus 3.0%



• All funds for down payment and closing costs can be gifted family member, employer or church organization



• The seller can contribute up to 6% to the buyer to assist with closing costs



• There are no reserve requirements (although there could be underwriter discretion to ask for proof of 2 months of reserves for lesser qualified borrower applicants – ie. Lower credit scores, high debt to income ratios, weak credit histories)



• Gift from family member can be placed as a second lien on title



• Non occupying co-borrowers can help the primary borrower qualify



• All of the income and assets to qualify the loan and the primary borrower can come from the non occupying co-borrower



• Home owner can do a cash out refinance up to 95% Loan To Value as long as they have owned the home for at least the prior 12 months



• There are no income limits which is unlike the Fannie Mae loan program called MyCommunity Mortgage and the Freddie Mac loan program called Home Possible



• In some case, borrowers who have lower credit scores can get lower payments with an FHA loan than if they were to get a conventional mortgage from Fannie Mae or Freddie Mac



• Unlike the past with FHA loans, the seller is not required to pay any closing costs on behalf of the borrower



• Mattress money is ok

Why Use FHA To Buy A Home or To Refinance Your Current Mortgage?

• If you have had past credit problems and your credit scores are below 620, FHA may be your only affordable option



• If you are falling behind on your mortgage you may be able to take advantage of either the HopeNow loan program or the FHA Secure Loan Program



• Interest rates are not typically increased with lower credit scores



• If you do not have a credit report but you do have some credit trade lines like a cell phone, cable bill, and a provable rent history for example, FHA might be an easier way to get a mortgage than Fannie Mae or Freddie Mac



• You can qualify for a FHA loan 2 years out of bankruptcy – and possibly 1 year if you have significant extenuating circumstances like a death of a spouse, or a severe medical problem. Divorce is not typically considered a significant extenuating circumstance – Sorry



• Medical collections in most cases are not considered or required to be paid



• You can qualify for a FHA mortgage within 3 years of a foreclosure whereas it is 4-5 years with Fannie Mae and Freddie Mac



• You do not have to be a first time home buyer to use FHA. Anyone can use FHA to buy a home or refinance their current mortgage (if you qualify)

Reasons To Not Use An FHA Loan

• All loans require mortgage insurance and require mortgage insurance to remain in place for a minimum of 5 years versus 2 years with conventional mortgage through Fannie Mae and Freddie Mac



• FHA loans are only for owner occupied properties – no investor loans, and do not try to buy a home as investment property through FHA. FHA has a very strict occupancy policy and lying about it is fraud and could result in jail time



• Loan limits for FHA are lower than loan limits for Fannie Mae and Freddie Mac

FHA Loans are not for everyone. However, since the mortgage credit crunch in 2007 FHA loans have made a strong comeback with many home buyers looking to purchase a home and home owners looking to refinance their current mortgage.