Since I started in the mortgage business back in ‘97 government mortgages have played second fiddle to conventional mortgages.
When you break down the two types of mortgages its easy to see why with convention loans being much simpler to process than FHAs.
A good example was the inside and out appraisal required by FHA. Why would a lender want to chance that when they could avoid it with a conventional mortgage?
The government loan was strong with 1st time home purchasers. Young people, especially, have less than perfect credit and little money to close on a home.
Mortgage brokers had a big selling point in that interest rates for FHA were comparable to the conventional mortgages.
Over time, with easing of lender restrictions, FHA went by the wayside. Even the 100% conventional products were better than going FHA… At least from the borrower’s perspective.
If the lenders could only take the last 10 years back…. I think they might.
Of course, we all know what happened. The bottom dropped out, 100% financing went away, the sub-prime market is gone, and alt-A products are not even close to what they once were.
What hadn’t changed with the reversal of fortunes was the general FHA underwriting guidelines. This is a great loan for all types of purchases, except investment properties. It is meant for primary residences.
So, why go FHA. Well, to begin you don’t need a big down payment. Many people don’t have that now. The typical FHA mortgage requires 3% down payment.
From a credit perspective FHA looks more closely at on time payments rather than credit scores.
The light credit requirements are of great help to those with lack of credit or others who hit a rough spot and are in the credit rebuilding process.
A ton of folks have had their credit scores pummeled over the last 24 months.
The truth is these loans have always been a great option. Now that conventional mortgages are far more conservative Fha is a great option.
Though they may have been poo pooed, FHA loans are now rightly main streem.
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