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FHA
Resources
FHA
Mortgage Insurance
FHA
requires a mortgage insurance premium (MIP) for its home buying
programs. An up-front premium of 1.50% of the loan amount is paid
at closing and can be financed into the mortgage amount. In addition,
there is a monthly MIP amount included in the PITI of .50%. Condos
do not require up front MIP - only monthly MIP.
On
an FHA loan the borrower will be charged a mortgage insurance premium
equal to 1.50% of the purchase price of the property and a renewal
premium of .500% in subsequent years. By contrast the mortgage insurance
premium charged at closing on a conventional program is as low as
.500% (with 10% down payment) with renewal rate in subsequent years
as low as .300% in subsequent years.
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Streamline
Refinancing for FHA Mortgages
FHA has permitted streamline refinances on insured mortgages since
the early 1980's. The streamline refers only to the amount of documentation
and underwriting that needs to be performed by the mortgage company,
and does not mean that there are no costs involved in the transaction.
The
basic requirements of a streamline refinance are:
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The mortgage to be refinanced must already be FHA insured.
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The mortgage to be refinanced should be current (not delinquent).
•
The refinance is to result in a lowering of the borrower's monthly
principal and interest payments.
•
No cash may be taken out on mortgages refinanced using the streamline
refinance process.
•
Certain other conditions apply, so check with your loan officer.
Companies may offer streamline refinances in several ways. Some
companies offer "no cost" refinances (actually, no out-of-pocket
expenses to the borrower) by charging a higher rate of interest
on the new loan than if the borrower financed or paid the closing
costs in cash. From this premium, the company pays any closing costs
that are incurred on the transaction.
Companies
may offer streamline refinances and include the closing costs into
the new mortgage amount. This can only be done if there is sufficient
equity in the property, as determined by an appraisal. Streamline
refinances can also be done without appraisals, but the new loan
amount cannot exceed what is currently owed, i.e., closing costs
may not be added to the new mortgage with those costs either paid
in cash or through the premium rate as described above. Investment
properties (properties in which the borrower does not reside in
as his or her principal residence) may only be refinanced with a
new appraisal and, thus, closing costs may not be included in the
new mortgage amount.
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Down
Payment Gifts
The down payment can be 100% gift funds. This is one of the key
benefits to the FHA program.
Verification
of the source of gift money is 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. They
can also be certain organizations, such as a labor union or charitable
organization. Contact your local loan officer for complete information.
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Bankruptcy
and Foreclosure
A credit report will be obtained on the borrower and any lates,
collections, judgments, foreclosures, bankruptcies, etc. must have
a justifiable explanation in writing by the borrower.
In
the event of a foreclosure, the borrower has three years from the
date the claim was paid until he/she is eligible for another FHA
loan, unless the foreclosure was the result of extenuating circumstances
beyond the borrower's control and the borrower has since established
good credit.
Chapter
7 bankruptcy requires the borrower to wait at least two years from
the date of discharge.
Chapter
13 bankruptcy requires the borrower to have been paying on the bankruptcy
for at least one year, performance must have been satisfactory and
the borrower must also receive court approval to enter into the
mortgage transaction.
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Refunds
on FHA Loans
If you have ever paid off a home loan backed by FHA, you may have
money owed to you. And the government wants to pay you back.
About
1 in 10 FHA borrowers leave money in their escrow accounts when
they pay off their loans. The average refund for each borrower is
about $700.
Former
FHA borrowers who think they might be due a refund can call a toll
free number, 800-697-6967, or write HUD at P.O. Box 23669, Washington
DC 20026.
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Single
Family Mortgage Insurance
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 mortgage
companies to make loans to otherwise creditworthy borrowers and
projects that might not be able to meet conventional underwriting
requirements, by protecting the mortgage company against loan default
on mortgages for properties that meet certain minimum requirements--including
manufactured homes, single-family and multifamily properties, and
some health-related facilities.
Section
203(b) is the centerpiece of FHA's single-family insurance programs.
It is the successor of the program that helped save homeowners from
default in the 1930s, that helped open the suburbs for returning
veterans in the 1940s and 1950s, and that helped shape the modern
mortgage finance system. Today, FHA One- to Four-Family Mortgage
Insurance is still an important tool through which the Federal Government
expands homeownership opportunities for first-time homebuyers and
other borrowers who would not otherwise qualify for conventional
loans on affordable terms, as well as for those who live in underserved
areas where mortgages may be harder to get. In FY 1997, FHA insured
more than 790,000 homes, valued at almost $60 billion, under this
program. FHA currently insures a total of about 7 million loans
valued at nearly $400 billion. These obligations are protected by
FHA's Mutual Mortgage Insurance Fund, which is sustained entirely
by borrower premiums.
Section
203(b) has several important features:
Down
payment requirements can be low. In contrast to conventional
mortgage products, which frequently require down payments of 5-10
percent or more of the purchase price of the home, single-family
mortgages insured by FHA under Section 203(b) make it possible to
reduce down payments to as little as 2.25 percent. This is because
FHA insurance allows borrowers to finance approximately 97 percent
of the value of their home purchase through their mortgage, in some
cases. In all FHA loans, the borrowers must contribute at least
3 percent to the transaction, and this money can all come from an
eligible gift. Contact your local loan officer for details about
the required funds for FHA.
Many
closing costs can be financed. With most conventional loans,
the borrower must pay, at the time of purchase, closing costs (the
many fees and charges associated with buying a home) equivalent
to 2-3 percent of the price of the home. This program allows the
borrower to finance many of these charges, thus reducing the up-front
cost 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 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 making a loan. For example,
the loan origination fee charged 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.
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