FHA loans now a feasible option for Silicon Valley, experts say

With the passage of the economic stimulus package, real estate agents can now tell their clients there is a window of opportunity with Federal Home Administration loans, according to area loan specialists.

Speaking at a class for members of the Silicon Valley Association of Realtors and a day later to agents who are members of the South Asian Real Estate Association of America, Wells Fargo home mortgage regional diverse segments manager Grace Mejia and senior home mortgage consultant Jimmy Kang shared information on the advantages of FHA loans for buyers.

FHA loans lost their popularity especially in such high-cost areas as California in the 1990s, as home values began inching upward, surpassing FHA mortgage limits. Also, many felt FHA had very strict credit standards and too many stringent and burdensome appraisal requirements, and often it took too long to close an FHA loan.

Mejia says with conforming loan limits now increased to $729,750 for Santa Clara County, FHA loans have become a very feasible option for homebuyers, especially since the county’s median price is now less than the maximum loan amount. DataQuick Information System’s recently disclosed the median price paid for a Santa Clara County home in March 2008 was $620,000.

Raising the loan limits should allow a larger pool of borrowers to qualify for lower-cost mortgages or to refinance existing mortgages. FHA loans have some advantages over other loan products. FHA insures the loan, so the lender can offer a borrower a better deal. FHA requires low down payments, low closing costs and easy credit qualifying.

There are good “hooks” or “sweet spots” to FHA loans, according to Mejia:

• All FHA loans are fully assumable.

• Credit standards are more flexible. You may qualify for an FHA loan even if you have encountered financial problems. Nominal credit scores apply, and non-traditional proof of credit worthiness may be used, i.e., proof of rent/utility payments. If you have filed for bankruptcy in the past, you can obtain an FHA loan two years from the date of your bankruptcy discharge, as long as you’ve maintained good credit since your debts were discharged.

• FHA’s debt to income ratio is 31/43 with a 3 percent down payment requirement; 100 percent of the down payment may be gift money.

• Co-signers/co-mortgagors need not be occupants of the home.

• FHA appraisal requirements have been greatly relaxed.

• Underwriting is now standardized.

• FHA no longer requires seller closing fees, just a tax service fee.

• It takes about 45 to 60 days to close, but there are exceptions, as long as full docs are received.

• FHA repair demands are more reasonable today. For example, defective roofs that leak still need to be replaced, but an older roof does not necessitate replacement if it doesn’t leak.

Mejia stressed FHA appraisals do not take the place of a home inspection. Buyers should still obtain a professional home inspection.

She indicated as more people learn of the advantages, FHA loans are becoming a more popular option. Wells Fargo Home Mortgage is currently processing 100 to 150 FHA loans a day, and staff is working overtime on these loans.

“We’ve only hit the pent-up demand. If you are not prepared for FHA, it’s like shooting yourself in the foot,” said Mejia. “This is the time to buy real estate.”

Both Mejia and Kang encouraged agents to learn more about FHA loans and to use a knowledgeable, trustworthy lender who understands how FHA loans work. The FHA stimulus package is a window of opportunity for buyers, and while there is a move to make the conforming loan limits increases permanent, the bill as signed by the president states the loan limits will be in effect only this year.

She stressed, whomever you choose, “Make sure your guy is prepared. You have to know your lender and make sure he understands how these loans work. This is not a market where you can afford to bring a client to a lender that’s gouging them.”