The FHA, or Federal Housing Administration, has helped many a homeowner buy a Santa Cruz home for sale by providing mortgage insurance through FHA-approved lenders. However, a change in policy, announced in January, may make it harder for those with poor credit.
Before we talk about FHA's change in policy, let's cover a few of the basics about the FHA and how it might help you buy a home for sale.
What is the FHA?
The FHA is a government agency that provides mortgage insurance to approved lending institutions. It assists homebuyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults. This encourages lenders to make loans to borrowers who might otherwise not be able to get a loan.
What is an FHA Loan?
An FHA loan is a loan provided by an FHA-approved lender and insured by the FHA. In other words, the FHA guarantees that a lender won’t have to write off a loan if the borrower defaults – the FHA will pay. Because of this guarantee, lenders are willing to make mortgage loans.
An FHA loan might help you get a mortgage by providing:
• Lower down payments
• Lower closing costs
• Easier credit qualifications
Now let's talk about the changes FHA is making…
The Future of FHA Loans
Until recently, the FHA has managed to weather the real estate turmoil rather well. In fact, the turbulence surrounding other lenders had potential homebuyers flocking to take advantage of FHA loans. However, even FHA's bank account is starting to suffer. In order to shore up capital reserves and keep 34 million families in their homes, the FHA is changing the rules.
Before the changes, borrowers were required to pay a down payment of 3.5% of the cost of the home. Now, borrowers with a credit rating below 580 will be required to pay at least a 10% down payment. As well, the good upfront mortgage insurance premiums of 1.75% are increasing to 2.25%. The FHA is now trying to get Congress' approval to raise the annual premiums from 0.55%, although the amount it will seek is still unknown.
What This Means for You
If you’re interested in buying a Santa Cruz home for sale, but haven’t because you’re waiting for the market to bottom out, you may end up losing out on a great deal. With almost record low mortgage rates, home values lower than they’ve been for eight years, the first-time and upgrade homebuyer tax credits and a wide selection of homes, there may never be a better time to buy.
Whether you want to use an FHA loan or a traditional loan, I can help you cash in on this great buyer's market. Call me today at 831.662.6522 or email me at Lauren@LaurenSpencer.com.