Dispelling Myths About FHA
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March 24, 2022
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Latinos are twice as likely to purchase a home using Federal Housing Administration (FHA) loans compared to non-Hispanic White households. However, Latino households using FHA loans faced the steepest hurdles in getting their offers accepted last year. If you read the 2021 State of Hispanic Homeownership Report, you know that Latinos were 81 percent more likely to get denied for conventional home purchase loans than non-Latinos, so for many first-time homebuyers, FHA loans were the only option. In the words of Lizbeth Alarcon, a real estate practitioner from Fairfield, CA, “The biggest challenge of 2021 was how much FHA borrowers were being discriminated against. A lot of sellers were very blunt about it: If it’s FHA, forget it.”
As real estate professionals, we have to think about the role we can play in ensuring that first-time homebuyers with low down payments can have the opportunity to start building wealth even with limited inventory. But first, we have to play a role in busting myths about FHA. Listing agents, especially, have a lot of power in framing offers to their sellers.
We asked Joe Castillo, NAHREP National Board of Director and Advisor to the National Advocacy Committee what he thought were the biggest myths surrounding FHA:
- MYTH: FHA borrowers are less creditworthy than other borrowers.
FACT: The majority of buyers using FHA loans have credit scores above 650.
- MYTH: Appraisals are stricter with FHA loans
FACT: Many sellers worry that the FHA appraisal may be stricter, but when it comes to pricing a home, the FHA appraisal is no different from a conventional appraisal. It is possible that a repair requirement can come up during an FHA appraisal that won’t come up in a conventional appraisal, but even if that’s the case, the repair requests are generally minimal.
- MYTH: FHA loans take longer
FACT: In most cases, FHA loans close within the same timeframe as conventional loans. You can advise your clients to instead look at other terms, like the offer amount, close date, earnest money, etc., to decide which offer is best for them.
If you haven’t read the latest iteration of the State of Hispanic Homeownership Report, click here.
About Noerena Limón
Noerena Limón is NAHREP’s Executive Vice President of Public Policy and Industry Relations. Noerena heads the organization’s policy and advocacy efforts on issues ranging from homeownership, housing inventory, credit access and immigration.
Prior to joining NAHREP, Noerena spent six years at the Consumer Financial Protection Bureau (CFPB) and served as a political appointee under President Obama in the White House Office of Political Affairs.