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F.H.A. loans and down payments

Why F.H.A. Loans are Preferred

About a year has passed since Fannie Mae introduced a mortgage program requiring only 3 percent down, an effort to put homeownership within reach of more first-time buyers. Freddie Mac introduced a similar option in March.

Neither product has enticed first-time buyers as hoped. As of the third quarter, those high loan-to-value products accounted for less than 3 percent of all high-L.T.V. loans.

Since 2009, when the housing market collapse caused conventional lenders to pull back sharply, buyers continue to flock toward low-down-payment loans backed by the Federal Housing Administration and the Department of Veterans Affairs. These loans continue to make up at least 90 percent of all high-L.T.V. home purchase originations, compared with about 33 percent in 2007.

High-L.T.V. loans in general are a growing share of the market. As of the third quarter, mortgages requiring less than 5 percent down made up 23 percent of all purchase originations, up 20 percent from the same time last year.

The minimum FICO credit score for Fannie’s high-L.T.V. loan is 620, for example, versus 580 for F.H.A. and V.A. loans.

Another reason for the disparity in popularity is that, for borrowers at the lower end of the credit spectrum, the monthly payment on F.H.A. loans can be considerably less. That’s because the F.H.A. reduced its mortgage insurance premiums last year by 50 basis points, making their rates far more competitive with private mortgage insurers.

A recent analysis by the Urban Institute’s Housing Finance Policy Center estimated that on a purchase of $250,000, with 3 ½ percent down, a loan with private mortgage insurance could cost a borrower with a FICO score below 680 from $225 to $260 more a month than an F.H.A. loan.

F.H.A. is preferred because people who have a need for a low down payment, who are also struggling with income, need flexibility in their debt ratios and flexibility in the credit score requirements.

Many states have their own programs to help low- to moderate-income borrowers obtain mortgages with a minimum amount down.

Contact our home loan agents in San Ramon for how to get an F.H.A loan.