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Know Your Financing Options

Real estate financing expert Michael Sichenzia, president of Deerfield Beach, Florida's Dynamic Consulting Enterprises LLC, says that there are a few excellent financing options, many of which are a result of a poor economy. Sichenzia, a former mortgage originator who sold mortgages to investors, did a four-year prison stint for mortgage fraud. When released, he turned over a new leaf and dedicated his life to correcting past wrongs and becoming a consumer watchdog, protecting naive homebuyers from predatory lending practices and unscrupulous mortgage brokers.

Sichenzia's fast buck days are over. He works from dawn to sunset re-negotiating loans on behalf of homeowners and tries to get loan modifications that reduce buyers' rates, extend terms and lower payments. His most challenging goal is helping homebuyers facing foreclosure find ways to salvage their homes.

Unlike mortage and financial experts who have hefty hourly fees, Sichenzia charges customers a one-time fee of $500 for his service, regardless of the time spent on each client's case. Often several days are spent working out clients' finances.

Although the residential housing market is in the proverbial toilet, Sichenzia says there are some excellent financial options for new-home buyers. His two favorites are FHA loans and home builder- and developer-sponsored financing. Here's the lowdown on each:

FHA Loans

The Federal Housing Administration (part of the Department of Housing and Urban Development) was established to help first-time buyers. The amount they can borrow ranges from $271,050 for single-family homes in low-cost areas to $729,750 in high-cost cities such as Los Angeles or New York.

Here are some of the benefits of an FHA loan.

• Small down payment. FHA loans require only a 3 percent down payment to obtain financing.
• Easy to qualify. Since the FHA insures the mortgage, lenders are more likely to give loans to borrowers with less than perfect credit histories. The FHA doesn't use credit scores to determine eligibility or interest rates.
• Lower cost. Because FHA loans are backed by the federal government, they're more likely to be competitive or offer better rates than commercial lenders.
• More security. In the face of a massive global financial crisis that brought down once-respected and established financial services institutions, the FHA, established in 1934, is not going away. If lenders encounter problems, the FHA offers options to avoid foreclosure.

However, the FHA is not giving away loans to potentially risky borrowers. It has clear, unbendable rules about borrowers with a history of bankruptcy and foreclosure. If borrowers have declared bankruptcy, two years must have passed from declaration, and they also must have re-established an acceptable credit record. And if a home was lost through foreclosure, they must wait three years and have a clean credit history during that period.

Each state has different FHA requirements. To learn more about FHA loans and banks offering them throughout the United States, contact the U.S. Department of Housing and Urban Development, 451 7th Street S.W., Washington, DC 20410; or call the FHA at 800-225-5342.

Home Builder and Developer Sponsored Financing

Home builders and developers are offering incredible buying opportunities -- far beyond free appliances and country club memberships. They include enticing financing incentives, says Sichenzia. In fact, builders are going toe-to-toe with banks and mortgage companies.

"When you consider that half of the 60,000 builders in the U.S. will be out of business by the end of 2009," adds Sichenzia, "it's no wonder that they're aggressively competing with lending institutions."

Sichenzia advises talking to publicly traded builders because there's less likelihood of running into snares.

When to Take Advantage of Builder Financing

Shop around and compare builder financing deals with what banks are offering, advises Sichenzia. Many builders are offering terms that are below market rates and less than what local banks are offering. "Many of the loans are in the 5 percent range," he says. "And they've been that way for the past few months. They're 30-year fixed rate loans, stable, conservative, and there's little to no risk."

This is very different from a few years ago. "Then, builders were offering adjustable rate loans, and eventually buyers were stuck with exotic loans that had to be financed," Sichenzia explains.

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