In the Market: Misguided ideas about FHA loans

Nneka Madus
Posted by Nneka Madus
Mortgage Market Analyst

This feature is a real estate news and information roundup from a millennial’s point of view. When a young professional moves from Indianapolis (median home price $125K) to San Francisco (median price $1 million), you can expect an adventure. Nneka Madus, an analyst in Bank of the West’s Mortgage Division, did just that and has plenty to share in her quest to own a home in San Francisco.

Young man and woman sitting at a table with paperwork and a calculator.Show of hands: Given the cost of housing, it’s likely I’ll ask my parents to cough up some dough to help me cover the down payment. Borrowing from your parents has a potential upside — they may not expect to be paid back (i.e., it may be a gift)! I’m not saying don’t pay your debts, but parents’ expectations may make financial help from them worth considering. Check out Brena Swanson’s article in HousingWire, and you may be surprised to see one survey found only 11% of parents expect to be paid back after they help their millennial kids buy homes. The Bank of Mom and Dad might be a helpful option.

FHA loans are popular for first-time homebuyers because of looser credit standards that aren’t necessarily available for other loan types. Despite numerous benefits, there are misconceptions about FHA loans among sellers. Scott Sheldon explains in this article the misguided stigmas tied to FHA loans and what you can do to assuage sellers’ concerns. Point One: Get a preapproval letter from a lender! He has some useful insights, so help yourself out and consider these moves when bidding on a home.

One step forward, two steps back: That’s what the latest changes from the Federal Housing Administration feel like. FHA loans are popular among first-time homebuyers because they have lower credit score requirements and lower down-payment requirements compared to conventional mortgages. Credit standards have eased slightly for first-timers applying for a mortgage, but now the FHA says a percentage of student loan debt will be factored into the debt-to-income (DTI) ratio. Repeat after me: One step forward … sigh … two steps back. This may be problematic because FHA loans have traditionally been popular among first-time homebuyers. Student loan debt isn’t the only thing the FHA has changed, as Kenneth Harney explains in this Washington Post article. Another FHA change may affect gifts for down payments. Don’t count yourself out, though. Best to talk with a lender about your individual circumstances to see how you may qualify for a conventional or FHA mortgage.

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