The new breed of FHA loans seems more inviting

August 08, 1993|By James M. Woodard | James M. Woodard,Copley News Service

For years, Federal Housing Administration mortgage financing has been dismissed as virtually useless in many cities.

The FHA, which insures mortgages, had pegged the maximum loan amount so low that the program was ignored by many consumers and brokers in areas where home prices are high.

But that is changing. A higher maximum amount for FHA loans, coupled with lower home prices in most areas and a greater flexibility in FHA loan terms, has again made FHA a viable form of home financing.

Nationally, about 18 percent of purchases of single-family homes in the past quarter were financed by FHA-insured loans, according to the Research Department of the National Association of Realtors. That figure is down from 22 percent last year. But recent activity shows an increasing proportion of FHA financing.

Consider these factors about the new breed of FHA mortgage loans: The maximum loan amount has been increased to $151,725. Average down payments are about 5 percent of the purchase price. A choice of a 30-year or a 15-year fixed-rate loan and a graduated payment plan (GPM) loan or an adjustable-rate loan are now offered.

To qualify, the borrower must pay no more than 29 percent of monthly income for housing costs -- 41 percent for all obligations.

There is more good news about today's FHA loans. If the `D mortgage is co-signed by a parent or other close relative, the combined income of the buyer and the co-signer is used to qualify for the loan. And the entire down payment, closing costs and reserves can be a gift from a blood relative.

If the purchased property is a condominium, there is no upfront FHA mutual insurance premium cost. In the case of single-family homes, 3 percent of the loan amount is charged at closing for the upfront mortgage insurance fee, followed by continuing charges with regular monthly payments in the amount of one-half percent per year (in 12 monthly payments).

In the case of FHA adjustable-rate loans, the initial low interest rate is considered in determining a buyer's qualifications. With many conventional adjustable loans, 2 percentage points are added to the initial rate to calculate an applicant's qualifications. This is often required by the provider of private mortgage insurance.

If desired, many of the FHA loan closing costs can be financed (included as part of the loan). And if certain repairs on the purchased house are required before it can be acceptable for an FHA loan, those repair costs can be added to the loan. But the completed repair work must be examined and approved by an FHA inspector -- another time-consuming step in the closing process.

For example, the FHA inspector may approve a loan in the amount of $141,000, subject to the condition that a new roof be installed. The $1,600 for a roof may be added to the basic loan amount, for a total of $142,600.

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