Home About Archives RSS Feed

The Independent Investor: Why FHA Loans Are so Popular

By Bill SchmickiBerkshires 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
Candidates Tackle Issues at Pittsfield School Committee Debate
Hawlemont Seeks to Join Northern Berkshire School Union
Paul Mark Announces Run for State Senate
Berkshire Athenaeum Issued and Renewed More Than 500 Library Cards
Letter: Support Bond for Mayor
Letter: Bond Has Knowledge, Experience for Mayor
Letter: Jennifer Macksey For Mayor
Letter: Lynette Bond for Mayor
Flying Cloud Institute Welcomes SMArt Studio Director
Williams College Museum of Art to Begin Design Phase for New Building
 
 


Categories:
@theMarket (385)
Independent Investor (451)
Retired Investor (62)
Archives:
October 2021 (4)
October 2020 (2)
September 2021 (9)
August 2021 (6)
July 2021 (8)
June 2021 (6)
May 2021 (6)
April 2021 (9)
March 2021 (8)
February 2021 (8)
January 2021 (5)
December 2020 (6)
November 2020 (8)
Tags:
Metals Interest Rates Housing Debt Ceiling Banks Selloff Euro Jobs Economy Fiscal Cliff Wall Street Stimulus Bailout Retirement Europe Congress Markets Rally Debt Deficit Taxes Currency Greece Stock Market Energy Stocks Federal Reserve Recession Pullback Election Crisis Japan Europe Commodities Oil
Popular Entries:
The Independent Investor: Don't Fight the Fed
Independent Investor: Europe's Banking Crisis
@theMarket: The Bottom Is In
@theMarket: Corrections Are Good for the Soul
@theMarket: A Week to Forget
@theMarket: Let the Good Times Roll
@theMarket: 707 Days
@theMarket: This Is the Year for Commodities
@theMarket: One Down, One to Go
@theMarket: No More Than 5 Percent
Recent Entries:
@theMarket: Markets Snap Out of Their Downtrend
The Retired Investor: Barbie Gets Better With Age
The Retried Investor: Golf Continues to Grow
@theMarket: Markets Are on the Cusp
The Retired Investor: Out of Gas
@theMarket: The Dip Buyers Return
The Retired Investor: Weather Worsens Global Trade
@theMarket: Markets Enter the Danger Zone
The Retired Investor: Moderates Winning on Tax Debate
@theMarket: Some Brokers Are Getting Bearish