Home About Archives RSS Feed

The Independent Investor: Why FHA Loans Are so Popular

By Bill Schmick
iBerkshires columnist
Federal Housing Authority Loans have long been one of the most popular types of mortgage loans available. Roughly 20 percent of all mortgage applicants will choose an FHA loan because it makes total economic sense to do so. And the older you are, the more important having an FHA approved dwelling becomes.
 
To many, that may appear to contradict your understanding of the FHA loan market. Most believe it is a program to assist younger folks, who need a hand to purchase their first home. You wouldn't be far wrong from a historical perspective, but times have changed.
 
The FHA loan was originally designed during the Depression years to help home buyers, (usually first-time applicants), with low credit scores and a small bank account, to afford a home. But the FHA doesn't make the loan; the bank does. The Federal Housing Administration, however, guarantees the loan, and as such, provides mortgage lenders an added degree of confidence and security in lending to the prospective home buyer. If the borrower defaults on the loan, the FHA will reimburse the lender the amount due.
 
Some of the benefits to the borrower include lenient credit scores, much lower minimum down payments (as little as 3.5 percent down), and lower mortgage rates, usually 0.10 percent-0.15 percent lower than the average rates on conventional loans.
 
The Veterans Administration's Home Loan Program is also available to qualified vets and works like its FHA brethren, guaranteeing the lender a portion of the loan if the vet defaults. An added benefit is that there is usually no minimum down payment required, and much lower credit scores, interest rates, and income requirements than even the FHA loan.
 
While many youngsters are taking advantage of these government resources, an increasing number of elderly and retirees are seeking out these same benefits, but for entirely different reasons.
 
As Baby Boomers become empty nesters and then realize they no longer want or can afford the expense, upkeep, and taxes on their original homestead, they are seeking out a more modest and affordable dwelling, either in their local neighborhood or in some more exotic (or warmer) locale. It is called "down-sizing," a popular trend among Boomers that has been gathering steam in this country for decades.
 
Many times, a condo is the dwelling of choice for these new home buyers. As a result, the number of condos throughout the United States continues to grow.  Since most retirees have more than enough money to purchase a condo with the proceeds of their larger home, FHA or VA loans have not been a factor in their purchase until now.
 
However, for many retirees, cutting expenses is one of the central reasons for downsizing. They find making ends meet is becoming increasingly difficult in today's environment. Social Security benefits, low interest rate returns on fixed income investments, and the rising cost of health care and other services are forcing more of the elderly to pinch pennies. Unfortunately, even downsizing is not enough.
 
More and more seniors are forced to turn to using their dwelling as an asset of last resort. The use of reverse mortgages to make ends meet is becoming increasingly popular. And here is where the rubber meets the road when it comes to an FHA loan. If your house or your condo is not FHA insured, you do not qualify for a reverse mortgage or a home equity conversion mortgage.
 
In my next column, I will explain how the failure to qualify your dwelling as an FHA-insured home/condo today can prevent you from leveraging your greatest asset when you need it the most.   
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
0 Comments
     

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
Pittsfield Candidates Debate Needs of Ward 5
Adams-Cheshire Taps Pittsfield Principal For Superintendent
Southside Knocks Out Racing Mart in Torchia League Playoffs
Clarksburg Eyeing Master Plan to Prioritize Projects
Berkshire Adult Baseball League Finals Start Saturday
Review: 'Fall Springs' is a Musical With a Message
Trustees Tour Conditions at North Adams Library
Marchetti Wants to Continue Providing 'Professional Leadership' to Council
Suffrage Centennial Committee Kicks Off Yearlong Celebration
Jack's Hot Dog Contest Crowns Local Champ, Raises Charity Funds

Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



Categories:
@theMarket (299)
Independent Investor (407)
Archives:
August 2019 (3)
August 2018 (4)
July 2019 (5)
June 2019 (8)
May 2019 (10)
April 2019 (7)
March 2019 (7)
February 2019 (6)
January 2019 (6)
December 2018 (4)
November 2018 (9)
October 2018 (5)
September 2018 (4)
Tags:
Selloff Bailout Election Greece Retirement Federal Reserve Currency Rally Crisis Stimulus Wall Street Europe Economy Congress Euro Pullback Energy Banks Fiscal Cliff Europe Jobs Metals Housing Debt Commodities Oil Stock Market Japan Interest Rates Taxes Deficit Recession Markets Debt Ceiling Stocks
Popular Entries:
The Independent Investor: Don't Fight the Fed
@theMarket: QE II Supports the Markets
The Independent Investor: Understanding the Foreclosure Scandal
The Independent Investor: Does Cash Mean Currencies?
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Why Are Interest Rates Rising?
The Independent Investor: Will the Municipal Bond Massacre Continue?
Recent Entries:
The Independent Investor: Will We race to the Bottom?
@theMarket: Tariff Threat Unsettles Markets
The Independent Investor: Brexit: The Never-Ending Story
@theMarket: All Eyes on the Fed
The Independent Investor: Make Vietnam Great Again?
The Independent Investor: Paid Family & Medical Leave Overdue
@theMarket: Looking Ahead
The Independent Investor: Home Equity Can Pay for Long-Term Care
@theMarket: G-20 Weighs on Stocks
The Independent Investor: Reverse Mortgages