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With all the glitzy mortgage options private lenders and mortgage brokers flashed around in recent years, the nerdy FHA loan sat neglected on the sidelines. But just as the girl with the glasses has more appeal after the arrogant bomb the exam, stable Federal Housing Authority loans are getting a second look as lenders drop riskier products.

In March, the U.S. Department of Housing and Urban Development raised the borrowing limits of its FHA loans through the end of the year. The Economic Stimulus act of 2008 allows the FHA to insure loans of up to 125 percent of an area’s median house price, providing the loan amount falls within the FHA’s national minimum of $271,050 and maximum of $729,750. For Wake and Johnston counties, that limit rose from $224,200 to $295,000. Durham, Orange and Chatham counties’ limit increased from $237,500 to $331,250.

“The FHA loan is a very tried-and-true mortgage option,” said Jan Rodgers, vice president of operations for Allen Tate Mortgage Co., a company that recently won authorization to approve and write FHA loans directly without sending them first to FHA for approval. Approving loans in-house, known as direct endorsement lending, can shave as much as four weeks off the time needed to get the loan approved.

FHA loans require significant documentation to provide lenders with a complete and accurate picture of the borrower’s financial stability and realistic ability to repay the loan. The process seemed tedious compared to the low- or no-documentation loans some lenders were willing to make until recently. But when the bottom fell out of the sub-prime mortgage industry, borrowers who stretched themselves to the max on adjustable rate mortgages defaulted wht the rates adjusted upward, lenders stopped offering risky products, such as NINJA (no income, no job, no assets) loans and 100 percent financing, and scrutinized borrowers more carefully.

Because the FHA vetted its borrowers so thoroughly, monthly mortgage insurance premiums were lower, making the loans that much more affordable. Gathering enough documentation to get a full picture of the borrower allowed underwriters to approve the loans on a case-by-case basis, rather than on automatic criteria.

“FHA loans are for Everyman; they’re more human,” said Jan Kerr, Allen Tate’s approved underwriter for FHA loans. “It’s more satisfying to be able to say yes to people who, if we went on a strictly automated system, we’d have to say no to.”

The increased FHA limits, even though only temporary, will allow Kerr to say yes to more people. Figures provided by Tina Konidaris, senior branch manager of Flagstar Bank Home Lending, culled from the Triangle Multiple Listing Service show that Orange is the only county in the Triangle with an average residential closing price in 2007 above the new FHA limit. In 2007, when the FHA limit for Wake County was $224,200, the average residential closing price in Wake was $263,342. The new limit of $271,050 would be able to accommodate those borrowers.

Orange County’s average residential closing price in 2007 was $342,740 and did reach nearly $400,000 during one month in 2007. Still, the new FHA limit of $331,250 would help more borrowers than the previous limit of $237,500.

“The FHA loans have become a much more viable option for a lot of borrowers,” Kerr said.

The FHA loans have often been used by first-time borrowers and others who don’t have much credit history established. The FHA will look at payment records of rent or cell phone bills, which wouldn’t qualify as credit history for a conventional loan.

However, the FHA is less lenient on what’s known as back ratio: the total mortgage payment plus all other debt payments, such as car payments or credit card debt, divided by the total gross income. While conventional loans might approve a back ratio of 50 percent, the FHA would allow only 43 percent. Consequently, the foreclosure rate is lower for FHA loans.

As is true with most mortgage lenders, Allen Tate will sell an FHA loan after it closes, said Rodgers, Allen Tate’s vice president of operations. The ubiquitous practice of selling mortgages came under criticism in the wake of the mortgage lending crisis. Critics said the practice encouraged lenders to make risky loans because they would not feel the impact of loan defaults because the risk had been passed on to another institution.

“The FHA loan is a safer loan,” Rodgers said. “These government-backed loans are insured by the government. They are more stable because of responsible lending.”

The rates on an FHA loan are comparable to or lower than rates for a conventional loan. Having the FHA loan written in-house does not incur any additional fees, Rodgers said.

“Ultimately, we need to look out for the consumer,” she said, “that they are well-educated and they know what they are getting. We show them the options and help them make a decision on what’s best for them.”

Kerr, who writes the loans, endorses filling the mortgage lending void with safe, FHA loans.

“Your home is the most important purchase you will ever make,” Kerr said. “It’s where you’re going to live, raise your kids and make your memories. It’s always been extremely important to me to feel like I’ve made a difference.”

Nancy E. Oates is a business and real estate writer in Chapel Hill. Reach her at neoates@earthlink.net.