Federal Housing Authority financing makes it easier for people to obtain financing to purchase homes. There are a few ways this is accomplished. A Federal Housing Authority backed mortgage typically requires a smaller down payment than is needed for conventional financing. With FHA you can have a down payment of as little as 3.5%. With FHA financing you must pay for mortgage insurance, which protects the lender if the buyer defaults on the loan. With conventional financing the typical down payment is 20% or more. For conventional financing buyers, a lower down payment is available to some. This would require Private Mortgage Insurance, which performs the same function. However, it’s usually more cost effective to use FHA financing. But quite often, FHA rates are better and the qualification requirements are more flexible. Also a lower credit score is permissible than with many conventional financing programs.
Legislation was recently passed in the Senate that will soon make it easier to obtain FHA financing. The House of Representatives passed the bill in February. H.R.3700 is the “Housing Opportunity Through Modernization Act. The National Association of Realtors has been supporting this bill.
All single family detached homes are eligible for FHA financing. But condo complexes are required to be approved for FHA financing. The process for condo communities to renew an expired approval s time consuming and costly. Many condominium associations have not gone through the process to renew. H.R.3700 will streamline the process, making it easier and less costly for a condo complex to gain approval. Under previous regulations, 50% of an association’s owners must also be occupants. Among the changes this will be reduced to 35%
These changes will also affect active adult communities. Many of the active adult communities are condominiums and require FHA financing approval. Veterans Authority mortgages follow many of the FHA rules.