Your Guide to Credit and Personal Finance

Borrowers flock to FHA loans
By Marcie Geffner - LendingTree.com

FHA loans, which are backed by the Federal Housing Administration (FHA), are enjoying a resurgence in today’s tighter lending climate.

FHA loans, which have been out of favor in recent years, are especially popular today because they typically have easier qualification requirements than non-governmental loans and require only a small down payment or very little equity. An FHA loan also may have a lower interest rate than would be offered on a comparable loan that wasn’t backed by the U.S. government.

What is the FHA?
The FHA doesn’t actually make loans. Instead, this agency offers a guarantee that reimburses your lender if you don’t pay back your loan. You’ll have to pay small upfront and monthly fees for that protection, but a lower interest rate might offset the extra expense.

An FHA loan can be used to buy a home or refinance an existing mortgage. Traditionally, the agency has been seen as an alternative for lower-income borrowers or borrowers with shaky credit histories. But now even well-to-do borrowers in affluent housing markets are opting for FHA loans.

In fact, the maximum loan amounts, called “limits,” that applied to FHA loans used to be relatively low compared with home prices, but recently were raised to significantly higher levels. The new limits range from $271,050 in inexpensive housing markets to $729,750 in high-cost markets. The uppermost limit used to be just $362,790 even in the nation’s most costly cities.

You can find out the new limit for your county on the FHA’s web site, www.fhaoutreach.com. The web site has two search functions: One uses an interactive map, and the other is a form with pull-down menus. If you’re planning to relocate, you can download a county-by-county chart of all the FHA loan limits across the country.

The new FHA loan limits will expire at the end of this year, unless Congress extends them. That means you’ll need to act soon if you want to lock in the benefits of a bigger-than-usual FHA mortgage.

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Can the Fed rate cut benefit borrowers?
By Marcie Geffner - LendingTree

The Federal Reserve made a substantial cut in a key interest rate Tuesday, March 18.

The federal funds rate was lowered three-quarters of one percent, referred to as “75 basis points,” from an already-low 3 percent to just 2.25 percent.

The rate cut may be good news for borrowers, even though the Fed’s decision doesn’t directly reduce interest rates on consumer or home loans. Instead, the rate cut can influence short-term interest rates on home equity lines of credit, adjustable-rate mortgages tied to the prime rate, car loans and credit cards. Longer-term loans like 30-year fixed-rate mortgages are less likely to benefit from the Fed’s rate cut.

The Fed decided to cut the interest rate due to slower growth in the economy and consumer spending, softer job markets and “considerable stress” in the financial markets. The lower rate should “promote moderate growth over time” and “mitigate the risks to economic activity,” the Fed said in a statement.

“The tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters,” the Fed observed.

Inflation is also a concern. Price increases are expected to “moderate” this year, but the outlook for inflation has become more uncertain and will need to be carefully monitored, the Fed said.

Even before the latest rate cut, interest rates were already very affordable on many types of loans, especially compared with historical averages. But a lower interest rate shouldn’t be the only factor you should consider if you want to buy a home or refinance your current mortgage. Shop around and compare the interest rate, monthly payment, fees and other terms of various loans that are offered to you. Choose a loan that you can afford and that fits your own personal financial situation.

Can the Federal rate cut benefit borrowers?
By Marcie Geffner - LendingTree

The Federal Reserve made a substantial cut in a key interest rate Tuesday, March 18.

The federal funds rate was lowered three-quarters of one percent, referred to as “75 basis points,” from an already-low 3 percent to just 2.25 percent.

The rate cut may be good news for borrowers, even though the Fed’s decision doesn’t directly reduce interest rates on consumer or home loans. Instead, the rate cut can influence short-term interest rates on home equity lines of credit, adjustable-rate mortgages tied to the prime rate, car loans and credit cards. Longer-term loans like 30-year fixed-rate mortgages are less likely to benefit from the Fed’s rate cut.

The Fed decided to cut the interest rate due to slower growth in the economy and consumer spending, softer job markets and “considerable stress” in the financial markets. The lower rate should “promote moderate growth over time” and “mitigate the risks to economic activity,” the Fed said in a statement.

“The tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters,” the Fed observed.

Inflation is also a concern. Price increases are expected to “moderate” this year, but the outlook for inflation has become more uncertain and will need to be carefully monitored, the Fed said.

Even before the latest rate cut, interest rates were already very affordable on many types of loans, especially compared with historical averages. But a lower interest rate shouldn’t be the only factor you should consider if you want to buy a home or refinance your current mortgage. Shop around and compare the interest rate, monthly payment, fees and other terms of various loans that are offered to you. Choose a loan that you can afford and that fits your own personal financial situation.