Tuesday, October 9, 2012

FHA Mortgage rates are low low low?

As FHA mortgage rates fall nationwide, so does the relative cost of owning a home. As compared to just 4 years ago, FHA purchasing power is higher by 26%.

FHA Mortgage Rates : Approaching 3.00 Percent

The Federal Housing Administration is a government agency, created in 1934. It serves three purposes : (1) To improve housing standards, (2) To stabilize the mortgage market, and (3) To insure mortgage loans.
Note that the FHA doesn't make loans directly. For example, it doesn't lend money to home buyers or give money for a refinance. Rather, the FHA insures the loans that mortgage lenders make, so long as those loans meet the FHA's mortgage guidelines.
FHA purchase mortgage guidelines are similar to conventional mortgage guidelines :
  • Annual income is verified with W-2 statements and tax returns
  • Monthly debts are verified via a credit report and personal statements
  • Employment and assets are verified prior to closing
However, the FHA tends to be more "loose" with respect to who gets approved. The FHA will often insure the "common sense" loans that Fannie Mae or Freddie Mac turn down as a matter of policy, and it does so without charging high mortgage rates.
FHA mortgage rates have been under 4 percent since January.

FHA Mortgages : 16% Of All Home Purchases

FHA home loans are used in nearly 16% of home sales nationwide -- four times the frequency of just 5 years ago.  There are three reasons for this FHA mortgage explosion.
First, the FHA offers the same low rates to all home buyers. Whereas conventional loans via Fannie Mae and Freddie Mac raise the mortgage rate for a buyer whose credit score is below 740, or whose subject property is a 2-unit, 3-unit or 4-unit home, the FHA does not. All FHA mortgage applicants get access to the same mortgage rates.
Second, the FHA caters to buyers who don't want to make a 20 percent downpayment.
In its guidelines, the FHA says that home buyers must only make a 3.5% downpayment, and that 3.5% amount may be a gift from a family member, employer, labor union, or a close friend with a defined and documented relationship with the buyer. The low-downpayment option offered via the FHA plus its loose rules around gifting have helped first-time buyers and existing homeowners short of liquid cash.
Lastly, the FHA offers higher loan limits than Fannie Mae and Freddie Mac in certain high-cost areas nationwide. For example, buyers in Orange County, California; Alexandria, Virginia; and Brooklyn, New York can use an FHA-backed loan to borrow up to $729,750 and still be within local mortgage loan limits.
Via Fannie Mae and Freddie Mac, the loan limit is $625,500.

See Today's Low FHA Mortgage Rates

Like with all mortgage types, FHA mortgage rates are making all-time lows this year. The combination of a recovering U.S. economy and ongoing government stimulus have helped to keep FHA mortgage rates down. Low rates can't be permanent, however.
If you've been shopping for mortgage rates, see what an FHA-backed mortgage can do for your budget. Rates are often lower than for a comparable conventional loan and downpayment requirements are lower, too.