Fixing 3 common FHA loan snags
If you're planning to buy a home, odds are good you may be seeking an FHA mortgage.
First-time homebuyers, buyers with less-than-perfect credit and purchasers who make down payments of less than 20 percent all are likely candidates for FHA mortgages.
Banks saddled with billions of dollars' worth of bad mortgages are deathly afraid of these types of buyers, so the FHA has stepped in to fill the void, says Dennis Geist, vice president of government programs at Wells Fargo Home Mortgage in Des Moines, Iowa.
"FHA is back again in force because of market conditions," Geist says. "We've seen a lot of foreclosures, and the risk has been greater recently than it's been in the past."
The FHA helps banks mitigate this risk by insuring otherwise risky borrowers' mortgages. In effect, FHA promises to pay the difference between what a home gets at a post-foreclosure auction and what's still owed on the home when a borrower defaults.
However, borrowers shouldn't think getting an FHA mortgage is always a slam-dunk. In the face of increasing losses, the government agency may soon begin tightening its loan standards, leaving some borrowers -- and their dream homes -- out in the cold.
Here are three potential roadblocks for your FHA plans, and how to get through them.