Since the turn of the millenium, FHA has been losing its market share to conventional loans. Why? FHA used to be the easiest way to qualify for a home loan, but that is no longer true. In the olden days, conventional loans required a minimum down payment of 5-10%. Now buyers can finance a conventional loan with no money down. In fact, buyers can receive 100-103% financing through conventional loans with appropriate credit, income, and debt ratios.
FHA requires a 3% investment for home loans. The down payment must be 2.25-3% of the sales price.
FHA began worrying two years ago. Now they are reviewing & revising. At the beginning of 2006, FHA reduced the buyer non-allowables from approximately $900 to $100. What are buyer non-allowables? They are expenses FHA did not allow the borrower to pay, but made the seller pay. Thus, it became more advantageous for the seller to accept an offer using a conventional loan over an FHA loan.
Still worried, at the beginning of 2006, FHA also dropped many of the property conditions it previously enforced. Since conventional loans were not concerned about these property conditions, FHA has dropped most of them.
Now FHA has realized that the most important thing they can do to recoup its market is PROVIDE 100% FINANCING. This has not happened yet, but I expect it to change sometime this year.
Be watching!