FHA - Best Financing for Today

The old 80/20 loans are gone for a while.  Most lenders require Mortgage Insurance is you have less than 20% down payment when you take out a loan for a house.  Most first time buyers don’t have 20% down payment, so they can avoid this by taking out one loan for 80% of the purchase price, and an addtional loan for 20% of the purchase price (which is then used as a ‘down payment’).  The problem is that the 20% loan is usually at a higher interest rate and many times is an adjustable loan.  Which is part of the reason why there are so many short sales and foreclosures on the market right now.  Those 20% loans are now adjusting upward and people can’t afford the payments. 

So if those 80/20 loans are a thing of the past, what does a buyer with not too much cash, but a decent income and credit score, do if he wants to buy a house in today’s market?  Go FHA.  It’s a lot less complicated than people think and in many cases it’s about the only loan that can work.  It is the loan with the lowest requred downpayment right now...that I know of.

So what are the parameters of an FHA Loan? 

1) 3% down payment (going up to 3.5% on Jan.1, 2009).  Must be paid by the purchaser (or can be gifted by anyone but the seller).
2) Up to 6% of the buyer’s closing costs can be paid by the seller
3) Minimum credit score of 620 required.
4) There is no income limit.
5) FHA Loans are assumable to anyone who qualifies for the loan.  (An asset when selling)
6) Co-Borrower is allowed.
7) Loan limits for Portland area are $418,750.

When you look over these requirements you’ll see this is one of the easiest loans for a purchaser to qualify for and still get a good interest rate.  Shop around with different lenders and find one who handles FHA loans.  I know Umpqua Bank does and I love them because they are local.  I know they do because I learned a lot of this at a refresher course for Realtors at their Tigard branch just last week.