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.
     

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
Red Shirt Farm Expanding With Store/Commercial Kitchen Build
Lanesborough Bridge Closed for Next Year
Hoosac Valley Community Urged to 'Be Like Mike'
MCLA Considering Temporary Homeless Housing on Campus
BCC, Sonoco Partner in Mechatronics Apprenticeship Program
Dalton American Rescue Plan Act Committee Makes Recommendations
Weekend Outlook: Live Music, Festivals, and More
MCLA Exploring Using Berkshire Towers As Homeless Shelter
MOLARI Employment and HealthCare Services Announces Management Team
nbCC selected as a Big Y Community Bag Program Beneficiary
 
 


Categories:
@theMarket (442)
Independent Investor (451)
Retired Investor (133)
Archives:
March 2023 (6)
March 2022 (2)
February 2023 (8)
January 2023 (6)
December 2022 (7)
November 2022 (7)
October 2022 (8)
September 2022 (9)
August 2022 (5)
July 2022 (7)
June 2022 (7)
May 2022 (7)
April 2022 (8)
Tags:
Interest Rates Stocks Banks Energy Japan Stimulus Employment Banking Recession Debt Ceiling Greece Economy Jobs Oil Commodities Europe Federal Reserve Euro Currency Crisis Rally Fiscal Cliff Bailout Markets Deficit Europe Selloff Congress Stock Market Pullback Retirement Metals Election Taxes Debt
Popular Entries:
The Independent Investor: Don't Fight the Fed
Independent Investor: Europe's Banking Crisis
@theMarket: Let the Good Times Roll
Independent Investor: Enough Already!
The Independent Investor: Japan — The Sun Is Beginning to Rise
@theMarket: Let Silver Be A Lesson
Independent Investor: What To Expect After a Waterfall Decline
@theMarket: One Down, One to Go
@theMarket: 707 Days
The Independent Investor: And Now For That Deficit
Recent Entries:
@theMarket: The Fed Walks a Tightrope.
The Retired Investor: Gold as a Safe Haven
@theMarket: Financial Contagion Spooks Markets
The Retired Investor: U.S. Treasuries Not Risk Free
@theMarket: Banks Hammer the Markets
The Retired Investor: Pet Clothing a Billion-Dollar Business
@theMarket: Bond Yields Weighing on Stocks
The Retired Investor: U.S. Treasuries Beginning to Look Attractive.
@theMarket: Stocks Working Off Some Steam
The Retired Investor: The Debt Ceiling Drama