Hope for Borrowers

An FHA loan may be just what Bay Area homebuyers need to enter the housing market.


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During the last boom, financing a home loan was pretty easy, with buyers needing little or no money down to qualify for conventional loans. Then came the bust, and with it tightened regulations that required a down payment of 20 percent. Today the going rate is 10 percent down—still hardly chump change where Bay Area housing is concerned.

But buyers can get in the market for even less than that 10 percent if they qualify for an FHA–insured loan. Originally intended to help lower-income Americans buy houses they couldn’t otherwise afford, Federal Housing Administration–insured loans require only 3.5 percent of the loan as a down payment.

About 13.75 percent of all homes in Alameda, Contra Costa, San Francisco, and Marin counties were purchased under the program for the year ending Sept. 30, 2013, according to the agency.

But there are drawbacks. FHA–insured mortgages require borrowers to make the property their primary residence. The maximum loan amount in this region is $625,500 for a single-family home or condo, rising to $1,202,925 for a fourplex. FHA borrowers must make an up-front payment of 1.75 percent and monthly payments of 1.35 percent of the loan amount for mortgage insurance premiums, said Charles Krauth of Walnut Creek’s Guild Mortgage. These costs can be substantial, though the payments fall as the loan is paid off.

By way of example, a borrower taking out the maximum loan amount of $625,500 for a single-family home would pay about $700 a month in mortgage insurance premiums to start out on top of principal, interest, and taxes.

“As values go up, people like to refinance out of FHA into conventional loans without the mortgage insurance,” Krauth said.

FHA–insured loans can be either fixed- or adjustable-rate loans, according to the agency. Borrowers can obtain the loans through an FHA–approved lender or a mortgage broker who works with an FHA approved lender. Interested borrowers can get more information about FHA-insured mortgages at www.HUD.gov.

Putting money aside for a big down payment as home prices rise may seem like an exercise in frustration, but with an FHA–insured mortgage, a buyer just may be able to get into the market and benefit from rising prices immediately.

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