FHA loans: Help for first-time homebuyersElisa BlackFHA loans I still remember the day my parents went from renters to homeowners. I couldn't figure out what all the fuss was about. To me, it meant starting school at the rival junior high across town. But to my parents, it meant stability and security for our family. In all of the jubilation over our new place, I remember my parents talking about a "gift" from the family that sold us the home. "We couldn't have done it without them," my dad said. My parents were both school teachers, which meant a lot of hard work, but not a lot of financial return. While my parents managed their monthly expenses, including rent, there was never enough left over to save a significant sum. It was a down payment gift and an FHA loan that finally made homeownership possible. What is your FHA IQ? Cheryl Knowlton, an account executive with Universal Mortgage, teaches FHA classes to brokers across the state of Utah. The following is an excerpt from a quiz she uses in her certified FHA classes. The answers may surprise you: True or False: 1. A three percent down payment is always required on FHA loans. (True) 2. Cash reserves of three months are required for all FHA purchase transactions. (False) 3. FHA loans are not allowed in some states depending upon state law. (False) 4. An FHA loan can be done as a fixed-rate mortgage or adjustable-rate mortgage. (True) 5. Monthly mortgage insurance premiums are required on all FHA purchase transactions. (False) "I teach my 'How to be an FHA Expert' course to my brokers because FHA loans are great for first-time homebuyers and borrowers with credit challenges," explained Knowlton. "Borrowers can get a great rate with no prepayment penalty. If I can give loan officers a tool to go out and help more borrowers get into homes, everyone wins. The more knowledge of loan options loan officers have, the more customers they can help." Why use FHA? As interest rates begin to grow and originations start to slow, mortgage professionals must adapt to meet the demands of the emerging homebuyer market if they want to see continued success. So, who makes up the emerging market and what are their needs? Minority and young first-time homebuyers are the answer to the first part of the question, and FHA loan products are the answer to the second. The emerging market The Hispanic population has become a significant economic force, wielding a purchasing power of approximately $700 billion. It is estimated that in 10 years, Hispanics will make up more than 40 percent of the first-time homebuyer population. Other previously underserved demographics, such as the Asian, Native American and African American populations, as well as the self-employed and those with unconventional credit, are making the move toward homeownership. Many minority individuals and families have the necessary income, but have not had a chance to establish a traditional credit history. The U.S. Department of Housing and Urban Development is rising to meet the challenge with new FHA products. The FHA advantage FHA loan products allow buyers to qualify with less money down and do not require a minimum credit score, although scores less than 580 typically require compensating factors. FHA loans also allow for gift funds to cover the down payment--the biggest obstacle to homeownership for most homebuyers--and FHA loans let the seller cover closing costs up to six percent. In addition to all of this, FHA loans are assumable, minimizing the risk for lenders. HUD has introduced two new programs and products specifically aimed at this new emerging homebuyer market: †HUD's new 184 Indian Housing Loan Guarantee Program, which is available on tribal trust land, is 150 percent of the FHA mortgage limit and requires no private mortgage insurance. The 184 loan program also allows for down payment assistance. †The streamlined 203(k) loan allows buyers purchasing an older home to finance an extra $15,000 into the mortgage for home repair and renovations. This plan is perfect for home improvement junkies, and it rejuvenates older houses and neighborhoods as well. A family trying to buy a home is not just looking for a roof over their heads. They are seeking a better life and are accepting the responsibility that comes with homeownership. They're ready to become part of a community in a permanent way. I still visit my parents at their little home in Provo, Utah. It is a refuge and home base for my brother, currently stationed in North Carolina with his U.S. Marine Corp unit, my sister when she visits from graduate school, and for me, even though I only live 20 minutes away. Elisa Black is director of marketing and communications for the Esther Foundation, a Utah-based non-profit organization that works to strengthen communities by helping people to become homeowners. She can be reached at (866) 743-7795 or e-mail [email protected].