Fewer First-Time Buyers Using FHA Mortgages

For decades, mortgages backed by the Federal Housing Administration were the preferred choice of first-time home buyers, due to low down payments and flexible credit score requirements. However, changes to underwriting guidelines in recent years have made these mortgages less popular.
Ryan Gable, owner of StartingPoint Realty, has witnessed how changes to the FHA mortgage program have affected first-time home buyers. “There are two primary reasons why FHA mortgages have lost favor with Chicago home buyers,” says Gable. “First, is the permanent mortgage insurance premium that affects buyers with less than 20 percent down. Second, is the fact that very few condominiums are ready for FHA financing, which eliminates a lot of inventory in our market.”
In December 2009, FHA updated its underwriting rules for condominium unit financing, requiring the entire building to meet certain benchmarks. Condo associations found the FHA approval process extremely cumbersome and time-consuming, which resulted in low participation. In August 2016, FHA revised its condo rules to simplify the approval process, but many associations have yet to get on board.
“If you take all the condo buildings in the Roscoe Village neighborhood of Chicago, less than 2% are FHA-approved,” notes Gable. “Since most first-time buyers in the City of Chicago are condo buyers, relying on FHA financing just doesn’t make sense.”
The changes to FHA mortgage insurance requirements in 2013 added salt to the wound. FHA mortgage insurance premiums used to be waivable once the home reached a loan-to-value ratio of 80%. But after the losses experienced in Great Recession, FHA polices changed, making mortgage insurance more expensive and entirely inflexible.
Meanwhile, Conventional mortgages have become much more competitive with FHA loans, by allowing 3 percent down payments, similar debt-to-income ratios, and waivable mortgage insurance. Conventional loans typically require higher credit scores than FHA loans, but this distinction doesn’t put them out of reach.

Gable offers this advice to first-time home buyers: “If you want a condo and you are relying on FHA financing, take the time to improve your credit, and get positioned for Conventional mortgage approval. Otherwise, your selection of FHA–eligible condos will be severely limited, and you’ll have the burden of permanent mortgage insurance.”
Since 2004, StartingPoint Realty has specialized in educating and representing first-time home buyers throughout Chicago and the Northwest Suburbs. StartingPoint Realty offers free, first-time home buyer seminars at various locations in Chicagoland. For more information, call 847-348-1154 or visit www.startingpointrealty.com.

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This release was published on openPR.