Monday, August 8, 2011

When the FHA gets out of the way, Here comes the neighborhood!

I have noticed my neighborhood has improved in the last few years, a much higher quality person has been moving in to my little community and petty vandalism and petty theft is down. It seems like new people moving in are also better off financially, have a better education, etc. Since the cost of housing here has also been driven down over the last few years, you would expect the opposite. So what might cause this apparent dichotomy? The answer is simple, the FHA will not loan for my complex since it is a “Patio Home” community and that is simply too unusual of a type of housing for the FHA to know what to do with it, so they just disqualify it from the get-go. For those that don't know a patio home is a stand alone house connected to its neighboring house by a patio, so its a cross between a tradition home and a town home.

How does not qualifying for an FHA loan improve the neighborhood? A few years ago when it seemed like any loser with a $1000 and a pulse could qualify for a home loan, the neighborhood really started to go south. There were a lot of shifty, unstable types moving in. After the housing crash most of these people had their homes repossessed by the banks and they were kicked out. This created a dramatic drop in the value of the homes here, and good deals were to be had for anyone who could qualify. However, the standard for qualification went way up, you need better credit and a higher down payment now than what the banks previously required. Now the only low down payment, high risk borrower who has any chance of getting a loan has only one choice, the FHA and those people can't buy a house in my community since the FHA does not loan for patio homes. Over time the neighborhood has improved as the bad risks have failed to keep up with their mortgage payments, and the people buying the houses vacated by those people are middle class people with decent credit and good down payments, who gravitated to the patio home community because it offers an affordable low maintenance way to get into a house with more size and features than more traditional houses on a dollar for dollar basis (more bang for the buck!). I am glad now, more than ever that I bought a home that is not "FHA Approved".

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