Some have dubbed FHA as the 'new subprime'. It isn't. FHA has been around since the 1930s and was in fact the first PMI company. I have used FHA twice to buy homes and it is not because my credit stinks. There are no income limits for FHA and the down payment is very small. It could get even smaller once the House & Senate work out their differences. Yes, the view on credit scores is more favorable to borrowers who have had problems in that area. But there are other reasons to consider the program.
Seller contributions to buyer closing costs can be more than the standard 3% for a low down payment loan. Gifts from family are acceptable for down payment or closing costs. And non-resident co-borrowers, otherwise known as 'co-signers', are acceptable for the program. Fixed rates are comparable to most conventional programs and discharges from a Chapter 7 bankruptcy need only to be 24 months old with re-established positive credit. Alternative credit sources are acceptable to conventional tradelines as well.
There are some drawbacks. Rural properties utilizing a spring or dug well for the water source, for example, will be ineligible. A well can be drilled with the aid of the 203k rehab loan, which is another area of FHA's uniqueness. There is an Up Front Mortgage Insurance Premium in addition to the monthly MIP, but it can be financed. MIP stays in place for 5 years even if principal reduction occurs to get the loan balance below 80% of the original sale price. But these are MINOR. As a Realtor, it will pay big dividends to know which of your listings qualify for the program. As a Veteran, you can reduce the down payment slightly by virtue of your status. As a homebuyer, if you do not qualify for the VA program, this one could be your ticket to homeownership. And as a mortgage officer, having this program will get you more business. In 2008, FHA will be the loan of choice.