Fewer FHA Loans Used for Home Purchases

The popularity of the government-backed FHA loans grew immensely during the years after the burst of the housing market bubble in 2007. Now, they seem to be losing their appeal even though they are still the easiest to obtain. Could this be a sign for the steady recovery of the mortgage market?

In February 2014, the number of homes purchased with the use of FHA loans accounted for 19.4% of all real estate purchases. In contrast, in February 2013, 25.3% of all purchases were made with the use of this type of loan. The drop of 5.9% is significant. Just a year ago, over a quarter of house buyers used such a loan. Now less than a fifth take advantage of it.

The drop in the number of FHA loans is a clear indicator that the conventional mortgages offered by banks become more affordable and easier to get for the average home buyer. The interest rates have marked a slight increase since the beginning of 2014, but they are still quite low. Even though considerable increase is expected by the end of the year, now consumers can make full use of the current favorable situation in the market. In addition to the lower interest rates, lenders have become somewhat more lenient and are willing to approve applicants with less than perfect credit score.

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At first sight, the FHA loans are quite attractive. Currently, applicants can qualify even with a credit score of 600 while in 2013 lenders required at least 640. The down payment can be as small as 3.5% of the property value. However, these loans are becoming ever more expensive. In general, the higher loan-to-value ratio results in higher interest payments. What’s more, the mortgage insurance premium is higher than ever before and home buyers are required to pay it for at least 11 years or for the whole term of the loan.

At present, the mortgage market has many more attractive deals compared to FHA loans.



Christian Calvin mortgage Christian is a contributing writer for Mortgage.info. He is a graduate from the University of Tennessee with a degree in Communications and a concentration in Broadcasting. Christian has served as vice-president for a privately-held company for more than 20 years. Additionally, he has also applied his writing and business knowledge to various websites with a focus on business and sports news . . . both of which are passions. Christian enjoys playing golf and spending time with his family and friends.

Contact: christian@mortgage.info

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