FHA to rescue subprime borrowers?

According to the Wall Street Journal the Department of Housing and Urban Development (HUD) has submitted legislation that would allow the Federal Housing Administration (FHA) to use flexible rates for subprime borrowers.

The FHA simply insures loans made by qualified lenders and does not make them, but the long and short of it is that subprime borrowers might be able to get loans at lower rates if their credit-risk profile is not too bad. HUD also said that it will eliminate the minimum 3% down payment.

In addition to those two changes, HUD will raise the maximum loan they will cover. They claim that current limits are often lower than new construction costs, putting new homes out of reach.

Taken together these three steps should make it much easier for first time home buyers with less than perfect credit and little money to put down. Let’s hope this goes through as planned.

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