Campbell & West San Jose Real Estate, brought to you by the Zanger Team at Referral Realty

Over the past few months, I’ve maintained one article regarding FHA and its importance in today’s real estate market. Several developments in the past few weeks and months further underscore the importance of this amazing program. You may be interested to know that this is not the first time FHA lending saved the day. In fact, the Department of Housing and Urban Development and FHA lending programs were developed in response to the financial crisis surrounding the Great Depression. Recent modernization of the program will certainly help to reestablish stability in the mortgage marketplace. The Housing and Economic Recovery Act of 2008 implemented the following changes to FHA lending provisions.

1. Maximum loan amount of $625,500 for high-cost areas (San Francisco Bay Area is “high-cost”)
2. Financing up to 100% of the property value.
3. Moratorium against risk-based pricing that makes lending to low credit borrowers more costly.

In a practical sense, borrowers with a troubled credit history and no money available for down payment can use the FHA loan to buy a home with the same interest rate as borrowers with 20% down payment and spotless credit. This program brings home ownership within reach for many Americans who would otherwise be unable to purchase a home.

Is this risky, you ask? There is no comparison between FHA lending and the Wild West of Lending we experienced for the past several years. FHA loans are fully amortizing requiring principal interest payments. Borrowers are qualified with full review of income and asset documentation. Succinctly put, FHA programs require that borrowers demonstrate the ability to repay the loan, a fundamental lending principal that was overlooked for several years resulting in the market turbulence we are now experiencing. Additionally, FHA offers financing of repairs to the property as part of the purchase money loan. With many properties coming to market from distressed sellers, this provision is more important than ever. Here are some highlights:

1. Work may be completed over a 6 month period after closing escrow.
2. Property is appraised “subject to” completion of the repairs allowing higher loan amounts.
3. Work may include roofs, heating, electrical, room additions, flooring, window replacement, kitchen remodel, paint, and many other improvements.
4. Owner may complete some or all of the work subject to approval of qualifications.

~Brian Thornton