The 203(b) Federal Insurance Guarantee Program... FHA
Back in 1934, the U.S. Government created an insurance program for banks and mortgage lenders to get credit markets moving, and people into homes. Before that, it was common that borrowers needed at least 20-30% of the purchase price to buy a home. Well, this new program changed all the rules – practically overnight.
Known as the 203(b) loan, named after the section of legislation that authorized the insurance program, the U.S. Federal Housing Administration was permitted to insure home loans up to 100% of the outstanding loan balance! This meant that if a loan went bad, the government stepped in and paid off the bank COMPLETELY! (Sounds a little too familiar, huh?)
Although this program has undergone many changes over the years, the basic principle has remained the same – protect lenders through government insurance. This means that the lender who issues the loan – HAS LITTLE TO NO RISK AT ALL!
So, how does it work?
FHA is NOT just for first-time buyers!
The program was just substantially overhauled as part of the Housing and Economic Reform Act passed by Congress at the end of 2008. It allows people such as yourself to purchase a home in any area of the country – up to as much as $729,500 (which could change again!) with only a 3.5% down payment. The down payment can be a gift from a family member, or it can come from your 401(k) or other asset account.
What’s the downside risk?
While the program can be used for homes anywhere in the country, there are limits to what you can finance in particular counties within the state. I can get you the purchase limits for the area you’re looking in – just give me a call. Another risk is declining values. Some areas have experienced a decline in the home values, but a government certified appraiser will review the property value and its condition to make sure you’re protected. As long as you plan on staying in the home for at least 2-3 years, you shouldn’t have to worry about taking a loss on the financing. After all – the government is insuring the loan!
