Real Estate Articles

REALTOR®: FHA Loans Can be Viable Option in Today’s Market

SILVAR affiliate Jimmy Kang (third from left) and Grace Mejia (far right) are pictured with SAREAA member Poonam Goyal, SAREAA President Yogendra Singh and SILVAR Cultural Diversity & Equal Opportunity Chair Sue Bose. Mejia and Kang have been speaking to real estate agents about the advantages of FHA loans. Kang is a Senior Home Mortgage consultant with Wells Fargo Home Mortgage in Palo Alto.

The passage of the economic stimulus package gives homebuyers a window of opportunity with Federal Home Administration (FHA) loans, according to area loan specialists.

Wells Fargo Home Mortgage Regional Diverse Segments manager Grace Mejia and Senior Home Mortgage consultant Jimmy Kang, who is an affiliate with the Silicon Valley Association of REALTORS® (SILVAR) and a member of SILVAR’s Palo Alto District, shared information on the advantages of FHA loans for buyers with SILVAR members and members of the South Asian Real Estate Association of America last week.
 
As home values began inching upwards, surpassing FHA mortgage limits, FHA loans, which have been helping people become homeowners since 1934, lost their popularity in high-cost areas like California in the 1990s. Buyers and sellers alike shied away from these loans because FHA had very strict credit standards, too many stringent and burdensome appraisal requirements, and often, it took too long to close an FHA loan.

With conforming loan limits now increased to $729,750 for Santa Clara County, FHA loans have become a very feasible option for homebuyers. Mejia told real estate agents. DataQuick Information System’s recently disclosed the median price paid for a Santa Clara County home in March 2008 was $620,000, less than the maximum loan amount.

With the increase in the loan limits, a larger pool of borrowers will now be able to qualify for lower-cost mortgages or to refinance existing mortgages, she said. FHA loans have specific advantages over other loan products. FHA insures the loan, so the lender can offer a borrower a better deal. FHA requires low down payments, low closing costs and easy credit qualifying.

There are good “hooks” or “sweet spots” to FHA loans, according to Mejia:
• All FHA loans are fully assumable.
• Credit standards are more flexible. You may qualify for an FHA loan even if you have encountered financial problems. Nominal credit scores apply and non-traditional proof of credit worthiness may be used, i.e. proof of rent/utility payments. If you have filed for bankruptcy in the past, you can obtain an FHA loan two years from the date of your bankruptcy discharge, as long as you've maintained good credit since your debts were discharged.
• FHA’s debt to income ratio is 31/43 with a 3 percent down payment requirement; 100 percent of the down payment may be gift money.
• Co-signers/co-mortgagors need not be occupants of the home
• FHA appraisal requirements have been greatly relaxed.
• Underwriting is now standardized.
• FHA no longer requires seller closing fees, just a tax service fee.
• It takes about 45 to 60 days to close, but there are exceptions, as long as full docs are received.
• FHA repair demands are more reasonable today, ex. defective roofs that leak still need to be replaced, but an older roof does not necessitate replacement if it doesn't leak.

She indicated as more people learn about these advantages, FHA loans are becoming a more viable option. She disclosed Wells Fargo Home Mortgage is currently processing 100 to 150 FHA loans a day and staff is working overtime, 24/7, on these loans.

“We’ve only hit the pent-up demand. If you are not prepared for FHA, it’s like shooting yourself in the foot,” said Mejia. “This is the time to buy real estate.”

Both Mejia and Kang encouraged agents to learn more about FHA loans and to use a knowledgeable, trustworthy lender who understands how FHA loans work. She stressed, whomever you choose, “Make sure your guy is prepared. You have to know your lender and make sure he understands how these loans work. This is not a market where you can afford to bring a client to a lender that’s gouging them.”

Visit the U.S. Department of Housing and Urban Development Web site at http://www.hud.gov/buying/loans.cfm for more information on FHA loans.
 

The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.

The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.

Variations of this article have appeared in local area newspapers.

For further information, please contact Rose Meily at SILVAR Public Affairs, e-mail , or phone (408) 200-0109.

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