According to CNNMoney.com “Mortgages insured by the Federal Housing Administration can be a lifeline for low-income or high-risk borrowers. These loans have tiny down-payment requirements, competitive rates and easy credit-score hurdles.”

I asked Dan Klebesadel a Home Mortgage Consultant with Wells Fargo Home Mortgage for his thoughts on FHA financing.

I do indeed do FHA mortgages and the article is in fact spot on.  The only item I would shed a different light on is that it is not specifically a tool for the low income borrower as it is a benefit to those with low downpayments.  Obviously a borrower with 10% down need not earn as much money as one who purchases the same property, but who finances more of it by way of a 3.5% downpayment.
 
 Whereas in LA county, conforming loans require a minimum of 10% down and the "jumbo", or non-conforming loans can require 25-30% down, FHA comes through strong with a 3.5% minimum downpayment.  Further, with the PMI companies having raised premiums as of late, FHA continues to be very attractive.   A conforming loan with 10% down has an annual PMI premium of .62% and, where permitted by FNMA, 95% financing comes in closer to 1% per year for the PMI.  FHA, however, is .50% per year up to 95% loan to value and .55% per year for loans up to 95.5% loan to value.  Note, however, that the mortgage insurance will remain with the loan and there is a 1.75% up-front premium that is generally financed on top of the base loan amount. 
 
We have just seen the roll-out of the extended temporary loan limits, $729,750, which are now in effect for LA county through the end of the year.  This means that for those who might have a higher rate on what otherwise would have a jumbo loan, and who have seen a large loss of equity had they purchased near 2006, are now able to refinance with little equity and at loan amounts far greater than before. 
 
These new loan limits are not as lenient with the credit scores, but assuming one can qualify for the payments, FHA is definitely the tool for getting one's foot in the door with less than 10% down or for refinancing if one has seen a drop in equity.  

Need more information on FHA financing?  Contact Dan @ 800.235.8347