Section 7 _FHA MORTGAGES:
The Department of Housing & Urban
Development guarantees FHA mortgages. FHA's mortgage insurance
programs help low and moderate-income families become homeowners
by lowering some of the costs of their mortgage loans. FHA mortgage
insurance also encourages mortgages to be made which otherwise
creditworthy borrowers may not qualify for, by protecting against
mortgage default.
Properties must meet certain minimum requirements
which are established in FHA guidelines. Manufactured homes, single
family and multifamily properties are covered through FHA loans.
Section 203(b) is the centerpiece of FHA's single-family insurance
program. It is the successor of the program that helped save homeowners
from default in the 1930s, helped open the suburbs for returning
Veterans in the 1940s and the 1950s, and helped shape the modern
mortgage finance system as we know it.
Today, FHA one-to-four Family Mortgage Insurance
is still an important tool through which the Federal Government
expands homeownership opportunities for first-time home buyers
and other borrowers who would otherwise not qualify for conventional
loans on affordable terms, as well as for those who live in the
underserved areas where mortgages may be harder to get.
FHA currently insures a total of about 7 million
mortgages valued at nearly $400 billion. These obligations are
protected by FHA's Mutual Mortgage Insurance fund, which is sustained
entirely by borrower-paid premiums.
FHA Loan Features:
Down payment Requirements
can be Low - In contrast to conventional mortgage products,
which frequently require down payments of 10% or more of the purchase
price of the home, single-family mortgages insured by FHA make
it possible to reduce down payments to as little as 3 percent.
It is FHA insurance which allows borrowers to finance approximately
97% of the value of their home purchase through their mortgage,
in some cases.
Down Payment Gifts
- One of the key benefits to the FHA program is that the down
payment can be 100% gift funds. Verification of the source of
gift money is not required. However, it is necessary that the
gift funds be deposited in the borrower's bank or savings' account,
or in an escrow account, prior to underwriting approval. Proof
of deposit is required. Gift donors are restricted primarily to
a relative of the borrower. Certain organizations, such as a labor
union or specified charitable organizations can also qualify as
gift donors.
Many Closing Costs can be
Financed - With most conventional loans, the buyer/borrower
must pay closing costs (the many fees and charges associated with
buying a home) equivalent to 3%+ of the price of the home with
financing of "allowable" costs available. FHA allows
the borrower to finance many of these charges, thus reducing the
up-front costs of buying a home. FHA mortgage insurance is not
free. Borrowers pay an up-front insurance premium (which may be
financed) at the time of the purchase, as well as monthly premiums
that are not financed, but instead are added to the regular mortgage
payment.
Some Fees are Limited
- FHA rules impose limits on some of the fees that mortgage companies
may charge in FHA mortgages. For example, the loan origination
fee charge by the mortgage company for the administrative cost
of processing the loan may not exceed one percent of the amount
of the mortgage.
HUD Sets Limits on the Amount
that may be Insured - To make sure that its programs serve
low and moderate-income people, FHA sets limits on the dollar
value of the mortgage loan. FHA's maximum loan amounts varies,
depending upon the county where you live. It is critical that
your mortgage amount, including closing costs (if you finance
your closing costs), not exceed the maximum loan amount in your
county set by FHA. Owners of higher-priced homes cannot borrow
any more than owners of homes valued at the FHA limit for the
same area.
FHA Loan Facts:
- There are no income limits on FHA loans.
- FHA offers more relaxed credit quality, income,
and asset requirements.
- You can use a non-owner occupant as a co-borrower.
In other words, your co-borrower doesn't have to
live in the home with you.
- If rates should fall and you want to refinance,
you won't have to pay for a new appraisal or credit report.
Keep in mind that the Mortgage Insurance Premium
(MIP, which in conventional mortgage programs is called Private
Mortgage Insurance or PMI) that is paid on an FHA mortgage can
be higher than on standard (conventional) financing. Further,
the appraisal of the property is more costly due to complex FHA
guidelines than on conventional financing.
