FHA’s higher loan limits, low down payments entice borrowers

[Jim Gibbs]

Wags call it government-sponsored subprime. Realtors and mortgage brokers call it the only sign of life in the lending market.

Federal Housing Administration loans are by far the most popular choice for
loan borrowers these days, thanks to low down payments and newly raised loan
limits.

What FHA offers borrowers, aside from rates that are identical to conventional loans:

• A down payment of only 3.5 percent. Most conventional mortgages require down payments of 10 percent or more. And the down payment can be a gift.
• Newly higher loan limits. On Feb. 25, FHA raised its limits to $423,750 for Palm Beach County (up from
  $345,000). The new limit in the Treasure Coast is $375,000.
• Less stringent rules for credit scores. While conventional lenders are looking for credit scores well into the 700s, FHA loans are available to borrowers with credit scores as low as 580,
  said Bobby Bashwiner of
  Group
  One Mortgage in Jupiter. However, borrowers with scores between 580 and
  620 will pay a higher rate.
• Lower mortgage insurance premiums. On FHA loans, the typical premium is $50 a month for each $100,000 financed, compared to $105 for conventional loans (if, of course, you can get
  a conventional loan with less than 20 percent down). One downside: Even if you
  make a 50 percent down payment on an FHA loan, you still have to pay for
  mortgage insurance.

All of that means FHA mortgages are suddenly the most important loan program for most mortgage brokers.

And Bashwiner says there’s one important difference between FHA loans and now-extinct subprime loans: The lender verifies income. Not only do FHA applications require W-2s, the lender
even calls the IRS to make sure it’s not approving liar loans.

“Everything has to be documented,” Bashwiner says.

Bob Clinton of Clinton Mortgage Network in Deerfield Beach likewise disputes the subprime comparison.

“FHA always verifies assets, they always verify income, so it’s very full documentation,” Clinton says. “It’s not a replacement for subprime, because they’re not going to go with borrowers who
have really bad credit.”