IE Business Daily Business news for the Inland Empire.
As most people know, the housing boom and subsequent crash of the past decade resulted in mortgage lending guidelines being tightened across the country. Because they are mortgage loans backed by the federal government, FHA loans were an especially big target of this effort. Most good lenders would agree that the restrictions were necessary; for a time, they were absolutely essential to the market’s recovery.
However, those restrictions were not without drawbacks. For one thing, the new guidelines led many people to fear that they may not qualify for a FHA loan anymore. Others mistakenly associated FHA loans with some of the failed “no money down” programs of the housing boom, causing them to fear that FHA loans are somehow “tainted.”
That’s unfortunate, because FHA loans have helped more California residents become homeowners than any other program. They are, and have always been, an outstanding tool for accomplishing homeownership. So with that in mind, here are some important facts about FHA loans, along with some of the more prevailing myths about the FHA loan program.
Myth: With the current guidelines that are in place, borrowers with credit challenges won’t qualify for FHA loans anymore.
Fact: FHA loans are still the ideal mortgage lending tool for borrowers with credit challenges. The minimum credit score for FHA borrowers varies by lender, but at Wholesale Capital Corporation, the minimum credit score for FHA borrowers is 580. Applicants who aren’t sure if they qualify for a home loan should contact us to request a pre-qualifying appointment.
Myth: FHA loans were the cause of the subprime mortgage crisis (especially FHA loans in California, where the subprime crisis was the most consequential).
Fact: The cause of the subprime mortgage crisis was subprime mortgage lending – meaning, approving mortgages for people who had no credit, no employment or no documented income. Often, the situations were worsened when lenders put those borrowers into adjustable rate mortgages without clearly explaining the terms. While many of these lenders used the FHA program as their lending vehicle – and, FHA loans in California in particular were severely abused by these lenders – their shoddy practices should not be considered a reflection on the FHA loan program.
Myth: FHA loans are the same thing as those phony “zero down” programs you hear about.
Fact: FHA loans are not zero down; they are low money down loans that require borrowers to make a 3.5 percent down payment. The zero down programs of the past are truly in the past; HART, AmeriDream, Nehemiah, American Family Funds, Family Home Providers, Futures Home Assistance, Grant America, Newsong, Partners in Charity, RHO and Quickdown have all been discontinued by the Department of Housing and Urban Development (HUD).
At one time, some of these were HUD approved for FHA loans in California; that is no longer the case. You can read more about that here.
Instead of using these failed programs, reputable lenders can now help FHA borrowers with programs like CalPlus, CalHFA, CalPlatinum/GSF Platinum and CHDAP. These are programs that can help some FHA borrowers purchase their homes with an even lower down payment; sometimes, as low as .5 percent. There are terms and conditions, and you need a knowledgeable lender to explain them to you.
