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.
2. Cash reserves of three months are required for all FHA purchase
3. FHA loans are not allowed in some states depending upon state
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 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
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
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
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 firstname.lastname@example.org.