FHA mortgage loans offer zero down option for first time home buyers
May 18, 2009 by admin
Economic principles carry through to all facets of the economy. The U.S. housing market is a great example of abundant supply, weak demand forcing down home prices. The government has attempted many methods to try and prop up home buying in the wake of the foreclosures and economic crisis that has grown over the past twenty four months. They have recently added another piece to the puzzle, allowing the government first time home buyer tax credit to be used as the down payment for the property, provided they are financing with an FHA mortgage loan.
FHA mortgage loans have been a great tool for homebuyers to purchase properties as they allow for a minimal down payment and flexible credit guidelines. Earlier this year the government moved forward with a tax credit of up to $8,000 for first time home buyers in hopes of incentivizing these individuals to enter the real estate market. The early results have been positive, but not spectacular. As the numbers of homes in the U.S. continue to go into foreclosure increases, further pressuring down home prices, the government is trying to add buyers into marketplace. The tax credits, combined with record low mortgage rates and improving consumer confidence have all been positive ingredients in helping to bring more home buyers into the market.
The challenge that a number of home buyers, especially first time home buyers have, is finding the money for the down payment. FHA loans have traditionally been used by home buyers as the down payment requirements are less than five percent (3.5%). Conventional loan financing, loans underwritten to standards set by Fannie Mae and Freddie Mac, require a minimum of five percent. The major problem with conventional financing for most first time home buyers is that these loans require mortgage insurance, through private companies, who have significantly changed their underwriting policies, making these loans much harder to obtain and with significantly higher payments.
The governments move, announced by Shaun Donovan, the director of Housing and Urban Development (HUD) which oversees the FHA mortgage program is being applauded by real estate agents and financial experts from coast to coast. The key to helping bring the U.S. real estate market back up is economics 101, supply versus demand, the more buyers that are in the market will help eliminate the excess inventory and stabilize home prices. Stabalizing home prices will be a critical element to fixing the U.S. economy and slowing down home foreclosures. This move is certainly going to be another piece to fixing this challenging puzzle.