Mortgage Market Trend: FHA Financing Finds New Popularity
When my husband and I bought our house last year, we went with FHA financing, coupled with a first time homebuyer program from the state. It worked out really well. But at the time we bought our home, FHA financing was not terribly popular. The main reason is that with FHA financing, a 3% down payment was required (it’s gone up to 3.5% under new FHA loan rules). At the time, people didn’t want to come up with a 3% down payment when they could go the 0 down route.
This year is different. It’s getting harder to get a home mortgage loan, and some mortgage lenders are asking for 5%, 10% and even 20% as a down payment. Interest rates are higher, and underwriting departments are seriously jumpy in some cases. All of this means that FHA financing is suddenly looking rather attractive.
Calculated Risk put together this chart to show the rising popularity of FHA financing:
Conventional financing is still more popular, but FHA financing is on the rise. Calculated Risk reports that the Census Bureau figures show that 17% of new homes sold in 2008’s third quarter were done so through FHA financing. On average, from 2005 to 2007, that number was only 4%. That’s a rather remarkable jump when you stop and think about it.
What do DAPs have to do with it?
Calculated Risk suggests that the big increase in FHA financing is due mainly to down payment assistance programs (DAPs). In the run up to October 1, when DAPs were banned from FHA financing, many home mortgage loan programs pushed these in order to take advantage of the impending change in the rules.
While I think that DAPs probably did contribute to the popularity of FHA financing, I’m not sure there will be a big drop off (although I except some). Right now, FHA home mortgage loans offer some of the better deals out there for homebuyers. In terms of interest rate and down payment requirements — and even credit requirements — FHA financing has become somewhat flexible when compared to some other mortgage lenders. And that makes FHA financing more appealing than it has been for years.
Tags: FHA loan rules, FHA financing, home mortgage loans, home loans,
mortgage lenders, mortgage market, mortgage market trend
October 30th, 2008 at 11:01 pm
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