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 June 15, 2008

FHA Loans on the Rise
In the past, FHA loans were rarely even considered as an option, so why are they on the rise? It's easy. FHA loans do not demand large down payments and they are also fairly relaxed when it comes to your credit score. FHA loan amounts rose quite drastically this year. The loans are not the most economical, but they are perfect for some future homeowners and with lenders tightening their grip in response to the mortgage downfall, they are sometime the only solution.
FHA loans were at an all-time low when home prices were on the rise and the subprime loans began to take over, offering lower initial costs. When the subprime loans began to default at a furious pace, FHA began to make sense again. High priced areas have seen a large increase in the number of FHA loans, mostly because the downpayment that other loans demand are not in reach. In the first quarter, FHA loans jumped up over 125% from last years numbers.

With FHA loans, prospective home buyers must be able to put down a minimum of 3% and must be able to prove their income. Whereas, with subprime loans the borrower was not required to make a down payment, nor did they have to verify their income. In addition, subprime loans were nearly impossible to refinance.

Banks like Wells Fargo are lending money at a frantic pace. They are up over 300% from last year and this can be partly attributed to the increase of the FHA loan limits. For most areas, the FHA limit tops off at $729,750.