FHA loans have long been an important and fundamental part of providing American home buying consumers with affordable mortgages using down payments as low as 3.5%. Other benefits with the FHA loan include more relaxed loan qualifying standards than conventional mortgages.
The Wall Street Journal (WSJ) had a front page article today about a new loan product that is just being introduced by Bank of America that looks like quite an improvement over FHA loans – if you qualify. The required down payment amount is slightly less (3%) but the big difference is there’s NO PRIVATE MORTGAGE INSURANCE (PMI) which can add $100 or more per month to the mortgage.
According to the article many big banks have pulled away from FHA insured lending over the past few years “citing the risk of being hit with penalties for minor errors…the banks retreat from the loan program has made it more difficult for low income borrowers to get home loans.”
B of A is able to avoid the PMI by partnering with a Durham, NC non-profit called Self-Help Ventures Fund (https://www.self-help.org) which will step into a loan default situation to help decrease losses to Freddie Mac (lender) before Freddie Mac has to take a loss.
To get this loan, borrowers will need a credit score of at least 660, which is higher than FHA’s requirement, and an income that is less than the area’s median. The 660 is higher than FHA’s minimum, but that is part of the overall strategy of the Self-Help organization to assist those folks who are showing responsibility in paying their bills. The article did not cite the maximum loan amount that B of A would make. FHA only loans $271,000 in Maricopa and Pinal counties.
Bottom line? If you’ve got a decent record of paying your bills and your income is less than the county median, this could be a great loan for you. If your credit however has some challenges or your income is higher, the FHA product or other low down conventional loan may be the right one for you. Either way, do it!
Either way, with the record low interest rates we currently have, or this new product, the time is (still) ideal to buy a home.