More Buyers Using FHA Loans to Buy Government Repo Homes
The number of homebuyers using Federal Housing Administration loans to buy private and government repo homes is increasing again after its decline in the 1990s.
In 2006, only two percent of homebuyers were using FHA loans. Most borrowers ignored FHA loans during the housing boom because of FHA loan limits and strict appraisal requirements. Home prices then were reaching their peak levels, surpassing FHA loan levels.
Now, FHA loans comprise almost 25 percent of loans taken out to buy private and government repo homes and other types of homes. Because lenders are now wary of making loans that would increase further losses, they are now more inclined to provide FHA-insured loans.
The FHA home loan insurance program encourages lenders to provide home loans to borrowers with lower down payments and lower credit scores because their losses will be covered by FHA.
Another factor for the rise in FHA loans to buy private and government repo homes is the increase in loan limits and choices of loan programs that borrowers can obtain.
Under the American Recovery and Reinvestment Act of 2009, FHA loan limits for purchases of single family homes have increased. The increased ARRA loan limits are based on limits set in the previously approved Housing and Economic Recovery Act of 2008 and the Economic Stimulus Act of 2008.
Under HERA, the FHA conforming loan limit for the year 2009 is $417,000, after which the Federal Housing Finance Agency will peg the loan limit to its chosen home price index.
Based on property size, the FHA loan limits are $271,050 for one-unit properties, $347,000 for two-unit properties, $419,400 for three-unit properties, and $521,350 for four-unit properties.
Also, the FHA loan limit for home equity conversion mortgages nationwide will increase from $417,000 to $625,500.
In high-cost cities, such as Washington, D.C. and New York City, FHA loan limits are set at $729,750.
Some critics said that giving higher FHA loans to borrowers who can only afford very minimal down payments and lower credit scores would cause another wave of private and government repo homes. But advocates of FHA loans argued that FHA has strict screening and appraisal guidelines. They explained that many prospective home buyers can afford to pay monthly home loan payments; they just cannot afford large amounts of down payments.
Now, FHA loans are not only being used to buy private and government repo homes; they are also being used to buy condominium units from housing developments previously approved by the FHA.
