Chitownproperty

You may have read about the problems in the “subprime” mortgage market recently. Subprime mortgages are loans given to traditionally underqualified applicants, often with extremely low interest rates that skyrocket after a brief introductory period. Many buyers who took out such loans during the recent real estate boom are now in foreclosure, as they can no longer afford to pay their mortgages after the rates adjusted.

Many of these people who could not get a mortgage through conventional means could have avoided this problem by securing loans through the Federal Housing Authority. The FHA can back loans for underqualified buyers, increasing the likelihood of their getting a loan through a standard lender. But unfortunately, the FHA rules have fallen behind today’s market. They still require large downpayments, even though many lenders are willing to accept less money down, and the loan limits are not high enough for many urban markets. Consequently, people turned to riskier subprime lenders, and are now suffering. The U.S. House of Representatives passed The Expanding the American Homeownership Act to help modernize FHA rules, but the bill is currently stuck in committee in the Senate.

The FHA Research Center has more on this problem, as well as information on how to get an FHA loan.