Renters who lack perfect credit and have not been able to save a big downpayment mayÂ still become FHA homebuyers. The FHA 203(b) home loan has been around since 1934, according to the Federal Housing Administration.Â
For those who are tired of renting and want to put down roots, the FHA home loan might be their best shot.
Here are three stories of people whoÂ badly wanted to buy, and who fulfilled that desire with an FHA mortgage.Click to see your FHA loan eligibility (Jul 24th, 2017)
A young couple wanted to buy their first house, but they were working with a pretty tight cash budget. They had about $3,000 for a downpayment for a property near the Columbus, Ohio, area.
â€śWe had, after all, just paid for a wedding,â€ť Ruth Awad explained. â€śWe narrowed our focus to homes in Clintonville, even though the market around here was hot and most of the houses were at the tippy-top of our price range.â€ť
The couple kept putting in bids and getting passed over for cash offers.
â€śOur Realtor told us that given the market, our FHA loan might make us less competitive buyers, and he was right,â€ť said Awad.
But they stuck with it.
â€śWe bought our house on Sept. 28, 2015. I remember the date because we closed two days after our wedding," sheÂ declared.
The two-story, three-bedroom house was built in 1920. It has the original hardwood floors and still needs updates such as the kitchen. The couple pays $121 a month for the FHA mortgage insurance that allowed them to buy with such a small downpayment.
â€śBut we are so happy for the fenced-in backyard for our dogs,â€ť Ruth saidÂ contentedly.Click to see your FHA loan eligibility (Jul 24th, 2017)
Realtor Michael Kelczewski was showing town homes on a Sunday afternoon in a new development in Newark, Dela. His clientele in that location is usuallyÂ first-time homebuyers and young professionals.
But this family was touring properties in the area with their grandmother, who was searching for a home to buy. Â She was originally from the area, but had never owned her own house.
â€śShe does not fit the typical first-time homebuyer age demographic. But she was widowed, currently renting, but seeking homeownership,â€ť he says.
â€śShe also was not entirely financially strong, so to speak, with her credit and not much downpayment.â€ť
Given the woman's limitations, FHA mortgagesÂ were only available products for her attempt at homeownership.
Kelczewski, a Realtor for the Brandywine Fine Properties Sothebyâ€™s International in Centreville, Delaware, said his client bought the propertyÂ home for $175,000. It had an open layout with updated features,Â which were important to her.
â€śThe FHA loan/state grant provided her a low downpayment and settlement assistance, where alternate loan products had failed,â€ť he says.
He adds that roughly 60 percent of his Millennial clients chooseÂ FHA loan products, because they usually are first-time homebuyers with high debt loads and perhaps limitedÂ credit histories,
Declares Kelczewski, who is also a Millennial, "FHA loans are one tangible option leading towards home ownership."
There is a misconception that FHA loans are only for first-time homebuyers, says Jeremy Schachter, mortgage advisor/branch manager at Pinnacle Capital Mortgage in Phoenix.
â€śBut I had a client last month close on a FHA loan, and he had a foreclosure from the downturn in the Arizona market like many people,â€ť SchachterÂ says.
FHA guidelines are more forgiving of serious derogatory events like foreclosure, allowing much shorter waiting periods and lower downpayments -- three years in the case of a foreclosure, with 3.5 percent down.
Conforming lenders like Fannie Mae require a four-year waiting period for foreclosures included in bankruptcies.
This drops to a three-year waiting period if the foreclosure was due to extenuating circumstances (things beyond the borrower's control and not his or her fault), and increases to seven years when foreclosures occur for other reasons.Â
Conforming lenders also often require larger downpayments post-foreclosure -- at least ten percent for Fannie Mae.
â€śSurprisingly, the client had really good credit after the foreclosure because that was his only derogatory on his credit report. He decided to put the minimum 3.5 percent down, and his payment was actually lower than his current rent,â€ť Schachter says.
The downpayment came from a gift from his father, which is allowed in an FHA loan, Schachter says.
The client's Â loan amount was just shy of the FHA loan limit in that area of Arizona. He ended up buying a single family historic home in downtown Phoenix.
â€śIn 2017, the loan limits are changing across the board, depending on which county you live in. In Maricopa County, the FHA loan limit is going from $271,050 to $275,665,â€ť he says.
FHA homebuyers are not people with truly bad credit -- they're just borrowers who don't check all the boxes for a conventional (non-government) lender -- high credit score, big downpayment, lots of money in the bank and a well-paying job.
If you're less-than-perfect, but want to become a homeowner, FHA home loans may be the best step you can take.
Today's FHA mortgage rates are generally a little lower than those of conventional (non-government) loans, but you also have to add in mortgage insurance. FHA mortgage insurance can be more expensive than private mortgage insurance (PMI). Check with a lender to see which program is right for you.Click to see your FHA loan eligibility (Jul 24th, 2017)
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2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)