EDITOR'S NOTE: This is the first in an occasional series looking at buying a first home. Once the loan of choice for first-time home buyers, the Federal Housing Authority mortgage has all but faded away.
Timing, which has led to the government-insured loan's near demise, could save it. Borrowers abandoned FHA loans as they discovered zero-down and interest-only options. Today, lenders are tightening standards that could limit some home buyers while FHA officials push to update the program.
Still, the FHA loan's makeover will have to overcome resistance among builders, developers, loan officers and real estate agents who say the loans are heavy on paperwork and unforgiving on appraisals. Many report not having used FHA loans in years, if ever, with no plans to start.
Another challenge in the South Sound market: The largest loan allowed by the FHA tops out at $362,790 - a difficult price to find in the region's most desirable neighborhoods.
Though Oxbow Mortgage in University Place, which Dyer co-owns, qualifies plenty of buyers through the Department of Veterans Affairs, the company doesn't do FHA loans.
"The FHA is like the guy who is always on the block and had been there the longest and everyone around him went on by," he said. "And now it's too late."
The newlyweds found their North End Tacoma dream home this year, just doors from his parents'. It has three bedrooms, and a big backyard, and cost $279,950.
The Hansons initially were working with a mortgage broker who several times raised the interest rate on their loan - all the way to 8.8 percent. A week before closing in March, they found a different loan officer and a new mortgage: an FHA loan at 5.88 percent, plus about $100 a month in mortgage insurance.
"We weren't even given any options regarding an FHA loan," said Corie Hanson, 22. "I feel like he was pushing us into something so he could get paid."
Long-held perceptions that deter lenders and others from FHA loans no longer hold up, said M.J. Walsh, a senior loan consultant at Pierce Commercial Bank, who thinks the loan program is on its way back.
FHA appraisers, for example, are not as strict as they once were, she said. And the down payment can be gifted or acquired through assistance programs.
The Expanding American Homeownership Act proposes to rework two of the loan's biggest barriers: the 3 percent down payment and the maximum loan limit.
If the bill is passed, down payments could shrink to 1 percent, said Danny Mendez, director of processing and underwriting for the Housing and Urban Development's Homeowner Center in California, which oversees FHA offices in the Western U.S.
Maximum loan limits would be figured using a new formula that could increase Pierce County's current loan limit from $362,790 to about $417,000. The county's median home price - the midpoint of all sales prices - in March was $274,950.
Last year, the FHA simplified its appraisal requirements and, for 2007, raised Pierce County's loan limit, Mendez said. Now interest in FHA loans is picking up, he said.
Pamela VanCleave, manager of Approved Mortgage in Tacoma, hasn't bothered with FHA loans in years. She recently described the program as "pretty much a big nuisance," particularly the paperwork.
In an 80-20 loan, a home buyer takes out two loans - the first for 80 percent of the purchase price, and the second for 20 percent of the home's price, according to Bankrate.com .
Besides many of those condos being priced too high to meet the loan limit, even those developing projects in the price range don't bother with the FHA.
Thirty years ago, conventional loans were for rich people and just about everybody else did FHA or VA financing, said Raelene Rogers, who has marketed and sold multiple condo projects, including Tacoma's The Vintage Y and The Roberson.
Rogers said she hasn't tried to get FHA approval for a developer since Snoqualmie Ridge was built in King County in 2003. Even then, nobody who bought at the 67-unit condo complex she worked on did it with an FHA loan.
Developer Tom O'Connor, who advocates for affordable housing, said he hasn't attempted to have one of his projects blessed by the FHA in at least five years.
He's finishing McCarver Village, downtown Tacoma town homes that started selling four years ago for $199,000 and now go for as high as $375,000.
"I've never not agreed to do FHA loans. It's just that they became so unpopular with even the real estate agents," said O'Connor, also president of the Master Builders Association of Pierce County. "It was so much easier to go with the bank than it was to get an FHA loan."
Jess Torres, owner of Western Washington Mortgage in Lakewood, predicts buyers will soon begin seeking out FHA loans, particularly as he and other mortgage brokers start pushing the program.
One aspect he likes to play up: Getting approved isn't credit-score driven, as conventional loans are, and instead relies on a buyer's credit history, such as consistent rent payments.
Senior loan officer Bob Morgan is marketing the merits of FHA loans to brokers and real estate agents who might need additional options in today's market, in which lenders are shying away from marginal buyers.
When Morgan, with City Bank Puyallup Home Loan Center, got into the business more than two decades ago, he said 80 percent of his loans were through either the FHA or the VA. Last year, that share was only 5 percent.
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