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Hope for Credit-Challenged Buyers: FHA Loans 

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Many people who are renting today are paying more than they would with a mortgage. At the same time, those renters may think they can't qualify for a loan because of damaged credit and more stringent loan requirements. Conventional loan criteria require higher credit scores than in the past, but the good news is that Federal Housing Administration loans make homeownership in reach for many credit-challenged buyers. There has also been a relaxing of FHA rules on condos, which might provide some new opportunities.

FHA loans are often viewed as a first-time buyer's loan, but they are available to almost anyone who qualifies for a mortgage. Recently, the FHA lowered its credit score requirements to 580 for a 3.5 percent down payment loan, and if your score is below that, you still qualify for a 10 percent down payment loan with a score of 500-579. FHA loans have additional requirements with which homebuyers need to become familiar and be prepared. A web search of "FHA Loan Requirements" will lead to links to HUD and various lender websites with a wealth of information. A good lender will also be able to help with information that will save you money in terms of what to look for in the condition of the home.

Another recent step forward with the FHA is in the area of condominium purchases. Condos have long been inaccessible to FHA-qualified buyers because of the 50 percent owner occupancy requirement the FHA imposed on condominium developments. Condominiums have been popular with investors and investor purchases have reduced the owner occupancy percentages, making an affordable housing purchase inaccessible to FHA buyers, particularly in high condo states such as Florida.

President Obama recently signed HR3700, the "Housing Opportunity Through Modernization Act," thereby reducing the minimum owner occupancy rate from 50 percent to 35 percent and relaxing some other regulations. Another interesting modification from this law deals with mixed-use developments. Previously, if commercial space was greater than 25 percent of the total building or development (i.e. homes on top of businesses), the homes did not qualify for FHA financing. New rules will be changing that criteria to what is normal for the area.

Ending our affordable housing crisis will require much more effort than this, but it is nice to see some action being taken that will help new homebuyers and those needing more affordable housing alternatives.

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