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Brief History: The Department of Housing and Urban Development (HUD) created an agency FHA (Federal Housing Administration) to assist in stimulating home ownership after the WWII. Prior to the program most home buyers needed to put 20% down and made homeownership out of reach. From circa 1950 to 1985, FHA was the program of choice for home buyers with little or no down payment. FHA is NOT the source of the money (loan). FHA simply works with institutional investors, Banks Mortgage Companies and insures that if they participate in the program and the borrower defaults, they will be reimbursed the amount of the loan. FHA funds this payout by collecting an insurance premium from every borrower. In 1985 Fannie Mae (the public version of mortgage lending) developed some homeownership programs that required less of a down payment, and fast tracked the paperwork process, leading the migration from FHA into Fannie Mae.

Why go back to FHA? Fannie is making it very difficult for two sectors of home buyers to obtain financing. The home buyer with little or no money and the home buyer who has less than a 680 credit score. These two sectors represent a 30% to 50% of the market. Fannie’s new policies dictate that if you fall into one of the two sectors you will either not be eligible for financing or you will pay a higher interest rate, as much as 1%.

FHA DOES require that we fully document the borrower’s ability to repay the loan. The biggest misconception is that this will be the home for all those sub prime borrowers. The borrowers that were approved for sub prime loans would NOT qualify for FHA. FHA has a very low default rate due to the experience of their participating lenders and the extensive review of the borrowers

FHA requires LENDERS (me) to go apply and be approved in order to participate in the program. This is a very, very thorough review of our policies, procedures, accounting, assets and staff.

There are a limited number of companies that are approved in the Lehigh Valley

Who should be looking at the FHA Program for their home financing?

• Anyone who has little cash to apply toward closing costs and down payment. With FHA you need 3% of the sales price total cash out of pocket. $ 150,000 Home = $4,500. (Compared to Fannie Mae, $ 9,000.00)
• Anyone that has credit score of 680 or less ( 70% of all American households)
• Refinance – anyone that may not have a lot of equity in their home and wants to consolidate debt (most liberal, allows you to borrow up to 95% of the value of your home to consolidate debts)
• Anyone in an adjustable rate or sub prime loan that would like to refinance out
• Anyone who currently has pre approved and shopping for a home. If your lender didn’t show you the advantages of FHA.