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FHA Loans Emerge From the Sidelines
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By contrast, many subprime loans did not require down payments or verification of income. They also charged expensive prepayment penalties that made it tough for borrowers to refinance. FHA loans do not allow such fees. Most FHA loans have fixed interest rates; subprime ones typically have rates that can rise.
Douglas Vazquez, 30, knew none of that when he applied for an FHA loan. "I was more like, 'FHA? What's that?' " Vazquez said.
All he knew is that he could not afford the 10 to 20 percent down payment many lenders demanded as he shopped for a condo, nor could he qualify for a loan without a co-signer.
An FHA loan worked for him because of the low down payment and because it let his mother, a non-occupant, sign on his loan, something many conventional loans do not allow.
The paperwork was a hassle, said Vazquez, who purchased a D.C. condo for about $400,000. "They required pay stubs from both of my jobs. They required statements from checking accounts. They wanted tax returns. They would call my employers. . . . They called my mother," Vasquez said. "But it was worth it."
These glowing reviews stand in sharp contrast to past criticism of the FHA, which was previously bashed by lenders and borrowers alike as too cumbersome. Now, complaints center on whether the agency can handle its growing workload.
Guy Cecala, publisher of Inside Mortgage Finance, said the FHA remains bureaucratic. "But if your choice is vanilla ice cream or no ice cream, vanilla starts looking good."
