FHA Mortgage Applications Up, Approvals Down

A lot of people who hope to buy real estate at bargain prices are finding that FHA mortgages have become hard to get.

While home prices are generally down more than 19 percent from the highs seen in 2007, and while fixed-rate mortgages continue to be available at less than 4 percent, borrowers are finding that FHA loans are not a sure thing.

The latest HUD figures for the first six months of the fiscal year show a considerable gap between applications and endorsements, the actual insuring of the loan by the FHA.

FHA loans

“At the half-way point in the fiscal year,” says HUD, “FHA has received a total of 853,559 applications for single-family mortgage insurance. Most of these (449,741) were for home-purchase transactions, though there has been significant activity for refinance actions (363,231) and HECM loans (40,587).”

HUD also says “year to date, FHA has insured 563,379 single-family mortgages. This includes 342,404 purchase cases, 192,055 refinance actions, and 28,920 reverse mortgages.”

In other words while there have been 853,559 applications there have also been 563,379 approvals. More than 290,000 applications have been declined.

Where do borrowers go when their FHA loan application has not been approved?

With the FHA borrowers can purchase with a 3.5 percent down payment. In contrast, VA loans allow qualified borrowers to purchase with zero down while conventional loans with mortgage insurance are typically available with 5 percent down. In addition to down payments borrowers also need cash for closing costs in most transactions.

Approvals Vs. Endorsements

Good news is that FHA applications are up about 6 percent in 2012 — that should be seen as a hint of improving market conditions. Last year at this time the FHA had 805,800 applications.

Approvals are way down, however. While there have been 563,379 FHA approvals this year, during the first six months of the 2011 fiscal year there were 696,786 successful loan applications. In other words FHA approvals are down 19.1 percent.

What to make of the new numbers? First, FHA approval is not a sure thing. Second, borrowers should make certain they have all their paperwork in hand before speaking with the lender.

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