FHA Leading Surge in Home Sales

California is the No. 1 state in the nation when it comes to writing government loans.

That's why real estate professionals recently filled the auditorium to capacity at the Southland Regional Association of Realtors to hear all about a very old loan program that now is leading the housing recovery — FHA-insured loans.

The Federal Housing Administration appeared 74 years ago when the nation was working its way through somewhat similar tough financial times — the Great Depression.

Over 35 millions loans have been endorsed or insured by FHA since 1934. It was of little use through recent decades as the high cost of California homes far exceeded what FHA could finance. But as home prices have come down and FHA rules loosened up, suddenly this venerable loan program is all the rage.

Now, FHA loans represent over 20 percent of all first mortgages in the country.

But don't think FHA is for first-time buyers only. It's an amazing vehicle that offers benefits to virtually any home buyer. During a time when non-conforming loans have vanished and even families with stellar credit and secure jobs have difficulty landing a loan, FHA is the one shining star that is playing a major role in the dramatic recent increases in home sales throughout the San Fernando Valley and California.

FHA's popularity does not surprise Dennis Geist, vice president of government programs at Well Fargo, and the keynote speaker at the Realtors' seminar. What does shock him is that so many people are unaware of the benefits of FHA and are not using this excellent program to buy a home.

Geist proceeded to burst one misconception after another about FHA loans.

For example:

• Almost anyone is eligible for a FHA-insured loan, not just first-time buyers. True, the program is geared toward first-time buyers, but it is also a great option for repeat or move-up buyers.

• FHA, which is not a lender but merely insures loans issued by approved lenders, is available for refinancing as well as first loans. No Income Restrictions

• There are no restrictions on household income or the price of the property being purchased. While the house itself can have any price tag, the size of the FHA-insured loan can be no larger than 115 percent of the median sale price within the region. That translates to a $625,000 limit in Los Angeles County, but that may go higher in coming months as additional economic stimulus packages emerge from the Obama Administration.

• There are no first-time buyer education requirements, although that too may change in the coming months, especially for folks with low FICO scores. For Credit Challenged • Buyers may have previous “credit challenges,” but they can still get a loan if they demonstrate an ability and willingness to repay the loan. Buyers also may be eligible with limited or no traditional credit history.

• The program allows for a non-occupant co-borrower — a mom and dad helping a son or daughter — to overcome an inadequate credit history. However, a co-signer cannot be used to overcome a negative credit history. In other words, the parent's stellar credit history cannot overcome bad credit established by a deadbeat kid. Those are just the obvious advantages of an FHA-insured loan.

Now for the really sweet incentives which even some real estate professionals are unaware of. In fact, Geist said that buyers should ignore anyone who says an FHA-insured loan is too “exotic” for their purposes or simply “unavailable.” It is neither. Instead, it is more mainstream and more available than anything else today and a primary way homes are being purchased in today's market.

What else makes the program so popular?

• Try a 3.5 percent down payment effective as of Jan. 1.

• No prepayment penalty.

• Generous gift provisions allowing for grants or gifts from family members or FHA-approved downpayment assistance programs. • The ability to use a non-occupant co-borrower.

• The seller can contribute up to 6 percent of closing costs. Fully Assumable

• And, if all that is still not enough, the loan is fully assumable, meaning financing is built in for the future. The presence of a 5 percent 30-year fixed-rate loan alone could distinguish a property from all others when it comes time to sell, especially since it's highly unlikely that interest rates will ever be this low again.

• Finally, if the buyer purchases a home that is in dire need of repair — “A Handyman Special! ” “As Is.” “A Fixer Upper.” “In Need of TLC!” — funds are available for non-structural repairs. That means a single loan can be issued to finance the purchase of the home plus up to $35,000 in renovation costs built in.

Renovation work can be completed within six months of the sale. If you can't prove you did the work, you don't get the money and the loan principle is reduced.

The money from the “Streamline FHA 203K” program can be spent fixing roofs, gutters, downspouts, HVAC systems, plumbing, electrical, minor remodeling, interior/exterior painting/siding, weather stripping, insulation, new appliances, handicapped accessibility ramps, and much more.

“This helps buyers by not putting them in a default position simply to fix up the home,” Geist said. “It's a very marketable program.”

A very marketable program indeed!

The Southland Regional Association of Realtors is a local trade serving the San Fernando and Santa Clarita valleys. SRAR is one of the largest local associations in the nation.