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Buyers Turned to FHA and USDA for Home Loans

By Sally Maison
Published: Thursday, February 4th, 2010

Uncle Sam extended billions of dollars in federal aid when the housing industry was caught in a slump last year. But developers and creditors were not the only ones who benfited from government aid. An $8,000 tax incentive was also given to first time homebuyers to boost home sales in Redding, CA. and the rest of America. Local experts attribute the extended deadline for the tax cut to the continuing increase of homebuyers. They also credit the FHA and the USDA Rural Development for making homes more affordable to low credit score homebuyers.

Buyers Turned to FHA and USDA for Home LoansThe Federal Housing Administration insures loans for homebuyers, allowing them to borrow at lower interest rates even if they do not have super-prime credit ratings. Consumers who avail FHA loans only need to pay down 3.5 percent of the property’s cost, way lower compared to the typical 10 percent down payment.

Both the FHA and the USDA insures loans up to $417,000. That amount might be too small a few years ago but when the housing market collapse, the value of homes went down as well. The economy and lower credit scores also forced more buyers to settle for less expensive homes.

In Northern California, one in every 10 homebuyers chose properties that were below $250,000, majority of them were first-time buyers. Mortgage specialist Ken Lawrence says without the FHA and USDA, things could have been worse.

Real estate experts in the area estimate that 60 percent of all home purchases in Shasta County last year were completed through FHA loans. They believe it is the low down payment which makes the loan attractive to low-income buyers. The median price for homes sold in December for Shasta County is $183,750. To purchase a house at this price, buyers only need to pay down $6,341.

However, officials want to strengthen the FHA’s capital reserve, which implies that drastic changes could come in the next few months. The agency already increased its credit score requirements the other month in an effort to reduce the number of defaulters.

FHA Commissioner David Stevens announced earlier this month that the agency wants to manage risks better while continuing to support the housing industry’s revitalization. Proposed changes would once again change minimum credit score requirement and increase insurance fees.

Analyst Dennis Black, however, is not afraid that those changes will severely impact home sales in the area, even if the minimum credit rating is raised. Meanwhile, Tom Semb tells buyers that the credit score required by lenders is actually higher than the FHA minimum. Someone who has a credit rating below 620 may find it difficult to get financing, says the loan expert.

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