A mid-year 2015 national housing data report shows exciting news – around the country, more and more home buyers are using FHA (Federal Housing Administration) low down payment loans for their home purchases – accounting for 23% of all single family home and condo sales in the 2nd quarter of 2015. The 23% share is the highest FHA allocation of buyers in the last two years.
FHA loans are typically used by first time home buyers and other buyers who do not have a lot of cash or equity in a current home to bring to the table. The loans are typically structured to offer those with qualifying credit scores just a 3.5% Down Payment requirement.
“FHA loans are enormously popular due to their low down payment requirements and we’re frankly not surprised to see national levels of these loans surging around the US,” said Gerard DiRuggiero, Principal Broker of UrbanLand Company. “The loan provides a consistently structured mortgage that lenders can plug into around the country. In fact, programs like DC Open Doors’ $0 Down Program and other funded assistance programs use the FHA vehicle as a means to pay your 3.5% Down Payment for you in Washington, DC.”
The housing data report goes into a lot more detail. “As a buyer new to the market, you have to understand first that a large chunk of the national real estate market (up until 2015) was driven by investor-purchases that were taking advantage of lower housing prices and a more depressed economy,” continued DiRuggiero. “As the investors cleaned out inventory in the market and investor-driven purchases faded, first time buyers, move-up buyers and other traditional purchasers have moved in to pursue a whole other round of new listings on the market.”
Loan programs like FHA with their low down payments stimulate demand and create opportunities for buyers who could not normally purchase a home due to cash issues. “Programs like FHA are one of the reasons why our UrbanLand Company Buyer Workshops have been so consistently popular over the last 2 years. On the surface, the FHA loan is a dream come true,” said Gerard. “When you dig deeper in the numbers as a buyer, what you find is that a super low down payment comes with an increased monthly mortgage payment. Your monthly mortgage payment, the true driver of your real purchasing power, is higher on an FHA mortgage due to its internal loan fees and mortgage insurance.”
For home buyers who absolutely need to buy with as little cash down as possible, FHA remains a strong tool that opens up opportunities you would normally need to walk away from. “Our Workshop attendees often come in with preconceived notions about their situation and their ability to get financed. We’re finding that a large % of buyers who are drawn to us 3.5% Down or even $0 Down end up using a more traditional mortgage loan, once we coach them on how to the importance of driving down that monthly mortgage payment as low as possible!” concluded DiRuggiero.
UrbanLand Company free Buyer Workshops are normally held on Tuesday evenings at 5:30pm and Saturday mornings at 10am. To RSVP or confirm this week’s sessions, email Info@UrbanLandCompany.com.
The number of FHA loan sales per year + FHA’s total share of home sales are shown below. Thanks to RealtyTrac for the data and report.