FHA home mortgages can include FHA loans for a 'fixer-upper" home. The
FHA loan for fixer-upper property combines the purchase price of the house
and the cost of repairs. There are also FHA loans available for qualified
borrowers over the age of sixty-two, to convert a portion of the equity in
a home into cash. There are FHA loans available for mobile homes and manufactured
homes. In addition to the other types of FHA loan guidelines that pertain
to specific types of purchases, there is also the FHA Energy Efficient Mortgage,
also known as EEM, providing mortgage insurance to buy or refinance a residence
and include the cost of energy-saving upgrades. For an FHA Energy Efficient
Mortgage, the borrower isn't required to qualify for the extra money needed
to include the energy upgrades, and there is no down payment required for
the extra amount. Anyone concerned about the environment, saving money or
just getting FHA Loan
FHA LOAN TYPES
What is an FHA Loan?
Home ownership rates
in America continue to increase at a steady rate due in a large part to
the implementation of FHA home loans more than seventy years ago. Over
the years, FHA has helped Americans gain the financial independence that
comes with owning a home. By creating jobs and reasonable mortgage rates
for the middle class, financing military housing, and producing housing
for the low income and the elderly, FHA has helped Americans become some
of the best housed people in the world with over 73 million Americans currently
owning their own homes. Statistics show that by 2005, home ownership rates
in the US have climbed to 69 percent.
HOW IT WORKS
By serving as an umbrella under which lenders have the confidence to extend
loans to those who may not meet conventional loan requirements, FHA's mortgage
insurance allows individuals to qualify who may have been previously denied
for a home loan by conventional underwriting guidelines.
FHA loans benefit those who would like to purchase a home but haven't been
able to put money away for the purchase, like recent college graduates, newlyweds,
or people who are still trying to complete their education. It also allows
individuals to qualify for a FHA loan whose credit has been marred by bankruptcy
or foreclosure.
NUTS AND BOLTS
The most popular FHA home loan is the 203(b). This fixed-rate loan often
works well for first time home buyers because it allows individuals to finance
up to 97 percent of their home loan which helps to keep down payments and
closing costs at a minimum. The 203(b) home loan is also the only loan in
which 100 percent of the closing costs can be a gift from a relative, non-profit,
or government agency.
Insurance on FHA mortgages are often rolled into the total monthly payment
at 0.5 percent of the total loan amount which is roughly half of the price
of mortgage insurance on a conventional loan. After five years or when the
loan balance reaches 78 percent, the additional mortgage insurance is typically
met and therefore drops off the total monthly payment.
GUIDELINES
It is not necessary to meet a minimum income requirement in order to qualify
for a FHA loan but debt ratios specific to the state in which the home will
be purchased have been put into place to prevent borrowers from getting into
a home they cannot afford. This is done through a close analysis of income
and monthly expenses.
FHA Refinance & FHA Streamline Refinance
Homeowners enjoy the
benefits of investing in their property year after year. For some, there
comes a time when that investment can come in handy. Refinancing with an
FHA loan can prove to be an effective way to put that equity to work.
Sending a child to college, consolidating bills, taking a much needed vacation,
or making home improvements are some of the ways homeowners tap into the
equity they have accumulated in their home to help with these expenses. Keep
in mind that FHA refinancing is only available to homeowners who are currently
using their home as their principal residence.
FHA offers several different options to homeowners who are considering
an FHA refinance mortgage:
FHA REFINANCE: CASH OUT REFINANCING
This refinancing option is especially beneficial to homeowners whose property
has increased in market value since the home was purchased. A Cash Out refinance
allows homeowners to refinance their existing mortgage by taking out another
mortgage for more than they currently owe, therefore repaying their current
mortgage and using the equity they have built up in their home to take out
another larger mortgage. This allows the homeowner to access the equity they
have built up in their home and put it to good use where needed.
In order to get the most benefit from refinancing your mortgage, it is often
best to consider refinancing after you have had time to build up a significant
amount of equity in your home. If the property was purchased more than one
year prior to the refinance, the homeowner can refinance the existing mortgage
for up to 85 percent of the appraised value plus the allowable closing costs,
which vary from state to state.
FHA REFINANCE: STREAMLINED REFINANCING BASICS
This refinancing option is considered streamlined because it allows you to
reduce the interest rate on your current home loan quickly and oftentimes
without an appraisal. FHA Streamlined Refinance also cuts down on the amount
of paperwork that must be completed by your lender saving you valuable time
and money.
In order to qualify for a Streamlined Refinance your original home loan must
be an FHA loan in good standing and the refinance must lower your monthly
interest payments. This type of refinancing option reduces your monthly expenses
by lowering your payments but there is no option to receive cash back. This
works well for people who are in good financial standing with no significant
debt because it allows you a little extra money each month that can be put
to good use elsewhere.
FHA Secure Refinancing
The Federal Housing Administration
(FHA) was established in 1934 to offer mortgage insurance on loans through
FHA-approved lenders. The FHA insures mortgages on single and multi-family
homes, and other approved purchases such as manufactured homes. The FHA
does not issue the loans themselves, but FHA mortgage insurance is quite
attractive for a prospective lender because FHA mortgage insurance protects
the lender's investment. Should a homeowner default on the mortgage or
go into foreclosure, the FHA pays the lender.
Loans insured by the FHA feature low down payments, and costs for FHA mortgage
insurance are built into the mortgage payment. Those costs disappear five
years into the loan or when the loan reaches 78% of the property value (whichever
is longer).
Many homeowners with adjustable rate mortgages find themselves in financial
trouble because of current interest rate increases. Foreclosure is a bigger
threat than ever, but fortunately the FHA has stepped in to help with FHASecure
Refinancing. Starting July 14, an expanded FHASecure refinancing plan allows
homeowners who have missed up to three mortgage payments in the last 12 months
under certain circumstances to avoid foreclosure with FHASecure.
You don't need an existing FHA home loan to qualify for an FHASecure refinance
loan - the program is designed to specifically to help those without FHA
loans to get lower payments, prevent default and foreclosure, and protect
their investment.
- Homeowners with current or delinquent non-FHA adjustable
rate mortgages are eligible.
- You are not automatically disqualified based on delinquency
on your current loan.
- You must have a dependable income and be able to make
your mortgage payment.
- If you are in default, you must show delinquency or
default is the result of increased interest rates and the resulting higher
mortgage payments.
- If you are current on your mortgage payments, any type
of conventional loan is eligible for FHASecure refinancing.
In addition to these
specifications;
- "Those who are current on mortgage payments can
refinance non-FHA fixed rate or adjustable rate mortgages. Those who
are behind on their mortgage payments may only refinance adjustable rate
mortgages.
- "Borrowers may be required to verify their mortgage
payment history through the mortgage servicer or with cancelled mortgage
payment checks.
- ""Cash out refinancing" is not eligible
under FHASecure.
FHASecure
refinancing is available for single-family or multi-family homes and
manufactured homes.
A new FHA premium pricing plan goes into effect on the same date the expanded
FHASecure refinancing program begins, July 14 2008. Borrowers should know
this "second chance" refinancing does not indicate relaxed requirements
for credit. Borrowers applying for FHASecure are subject to the same requirements
as any other applicant for an FHA loan. Delinquency issues for mortgage
payments aside, loan officers still require proof you are a good credit
risk. Borrowers should;
- Have steady income from a dependable source.
- Show a reliable payment history on other debts.
- Have a debt-to-income ratio below 41%.
- Have a credit score appropriate for any home loan.
If you are need further
explanation of the terms or conditions of FHASecure, be sure to ask your
loan officer for clarification before you sign.
FHA Reverse Mortgage
Established in 1934,
The Federal Housing Administration (FHA) offers mortgage insurance on loans
through FHA-approved lenders. The FHA provides this coverage for single
and multi-family homes, and other approved purchases. The FHA does not
issue loans, but FHA mortgage insurance is quite attractive for a prospective
lender.
The main reason for this is simple; FHA mortgage insurance protects the lender's
investment should a homeowner default on the mortgage. Loans insured by the
FHA feature low down payments, and costs for FHA mortgage insurance are built
into the mortgage payment. Those costs disappear five years into the loan
or when the loan reaches 78% of the property value (whichever is longer).
An FHA reverse mortgage is designed for homeowners age 62 and older. It allows
the borrower to convert equity in the home into income or a line of credit.
The FHA reverse mortgage loan is also known as a Home Equity Conversion Mortgage
(HECM), and is paid back when the homeowner no longer occupies the property.
There are requirements for an FHA-insured reverse mortgage or HECM;
- The loan is based on the age of the youngest borrower
if there are co-signers.
- Homeowners are required to get consumer counseling
and education before a HECM loan is approved.
- Borrowers must own and live on the property as the
primary residence.
Unlike other FHA loans,
there are no income or credit qualifications for this type of loan. You
will be required to have a current appraisal on the property as the amount
of an FHA reverse mortgage is based on the home's value or the FHA insurance
limit, whichever is lower. The FHA reverse mortgage;
- Is a loan based on current interest rates.
- Allows closing costs to be financed in the reverse
mortgage.
- Is for single-family homes or up to a four-unit home,
but must be occupied by the borrower.
- Is also permitted for FHA-approved condominiums and
manufactured homes.
FHA reverse mortgages
or HECM loans require the home to conform to FHA property standards and
flood requirements. The FHA reverse mortgage has a variety ways the borrower
can receive the money including monthly payments, a line of credit, or
combinations of payments and credit. The borrower does not pay on these
loans until the house is sold. The loan is repaid from the proceeds of
the property sale including interest. Any remaining equity in the home
after the loan has been repaid belongs to the homeowner.
If there is not enough money from the sale of the home to repay the loan
in full, FHA insurance is used to pay the difference. If you need further
clarification of the details of an FHA reverse mortgage, ask your loan officer
to explain before you sign.
FHA Energy Efficient Mortgages
The Energy Efficient
Mortgage Loan program helps current or potential homeowners significantly
lower their monthly utility bills by enabling them to incorporate the cost
of adding energy efficient improvements into their new home or existing
housing. This FHA program eliminates the need for homeowners who are interested
in making their home more energy efficient to take out an additional mortgage
loan to cover the cost of the improvements they intend to make to their
property. The program is available as part of a FHA insured home purchase
or by refinancing your current mortgage loan.
It is our government's goal to make energy efficiency and conservation a
way of life. The FHA Energy Efficient Mortgage Loan program contributes to
these efforts by providing better housing and creating a way for homeowners
to make valuable improvements to their homes at a relatively low cost. The
Joint Center for Housing Studies has reported that by considering the amount
of monthly savings on utility bills when determining the amount of the mortgage,
over 250 thousand more homeowners could feasibly qualify for a home loan.
HOW IT WORKS
Through this and other types of mortgage insurance programs, the lender helps
low and moderate-income families purchase homes by keeping the initial costs
down. By serving as an umbrella under which lenders have the confidence to
extend loans to those who may not meet conventional loan requirements, FHA
mortgage insurance allows individuals to qualify who may have been previously
denied for a home loan by conventional underwriting guidelines. It also protects
lenders against loan default on mortgages for properties that include manufactured
homes, single-family and multifamily properties, and some health-related
facilities.
AVAILABLE ASSISTANCE
The Energy Efficient Mortgage Loan program is one of many FHA programs that
insures mortgage loans. Borrowers who qualify for FHA's popular Section 203(b)
fixed-rate mortgage loan may finance up to 97 percent of their home loan.
They are also able to fold their closing costs and the up-front mortgage
insurance premium into the total cost of the loan. Energy Efficient Mortgages
can also be used with FHA Section 203(k) rehabilitation program; in this
case the Energy Efficient Mortgage generally follows the Section 203(k) rehabilitation
program's financing guidelines.
ELIGIBLITY
The Energy Efficient Mortgage Loan program is available to anyone who meets
the income requirements for FHA's Section 203(b) and is able to make the
monthly mortgage payments. The cost involved in adding energy efficient features
to the home and an estimate of the energy savings must be determined by a
home energy rating system or a qualified energy consultant. Up to $200 of
the cost of the energy inspection report may be included in the mortgage.
Cooperative units are not eligible. Individual condominium units may be insured
if they are not in projects that have been approved by FHA or the Department
of Veterans Affairs, or they meet certain Fannie Mae guidelines.
ELIGIBLE ENERGY EFFICIENT ACTIVITIES
Energy Efficient Mortgages can be used to make energy-efficient improvements
in one- or two-unit existing and new homes. The improvements can be included
in a borrower's mortgage only if their total cost is less than the total
dollar value of the energy that will be saved during their useful life. The
cost of the improvements that may be eligible for financing as part of the
mortgage is either 5 percent of the property's value (not to exceed $8,000)
or $4,000, whichever is greater. View the current FHA mortgage limits.
FHA Loans for Condominium Units
FHA Condominium Loans
are specifically geared toward those who purchase housing units in a condominium
building. Condominium ownership, in which separate owners of individual
units jointly own the development's common areas and facilities, is for
some a very popular alternative to home ownership. Insurance for this type
of housing is provided through FHA Section 234(c). This FHA insurance is
very important for low and moderate-income renters who wish to avoid the
risk of being displaced when their apartments are converted into condominiums.
HOW IT WORKS
Of the many types of mortgage insurance offered by FHA.com, FHA Condominium
Loans are designed to encourage lenders to extend affordable mortgage credit
to those who have non-conventional forms of ownership. The Section 234(c)
program insures a loan for 30 years to purchase a unit in a condominium building.
The building must contain at least four dwelling units and can be comprised
of detached and semidetached units, row houses, walkups, or an elevator structure.
Through this and other types of mortgage insurance programs, FHA.com helps
low and moderate-income families purchase homes with FHA loans by keeping
the initial costs down. By serving as an umbrella under which lenders have
the confidence to extend loans to those who may not meet conventional loan
requirements, FHA loan insurance allows individuals to qualify who may have
been previously denied for a home loan by conventional underwriting guidelines.
AVAILABLE ASSISTANCE
Many of the features of Section 234(c) mortgage insurance are similar to
those of FHA Section 203(b) for one to four-family homes. Down payment requirements
are low because these FHA loans allow borrowers to finance up to 97 percent
of their home loan and some of the closing costs can also be financed, further
reducing up front costs. On a Section 234(c) loan, FHA sets limits on the
size of the loan which vary with location and the number of units being purchased.
RESTRICTIONS
If the apartment is in a building that was converted from rental housing,
insurance may not be provided under Section 234(c) unless:
- The conversion occurred more than one year prior to
the application for insurance.
- The potential buyer or co-buyer was a tenant of that
rental housing.
- The conversion of the property is sponsored by a tenant's
organization that represents a majority of the households in the project.
Eighty percent of FHA
mortgages in the project must be made to owner-occupants. ELIGIBILITY
Any creditworthy persons who meet FHA underwriting criteria and are intending
to occupy the condominium unit as their principal residence are eligible
to apply.
FHA Home Loans for Purchasers with Rising Incomes
Graduated Payment Mortgages
are FHA loans for homebuyers who currently have low to moderate incomes
but expect them to increase substantially over the next 5 to 10 years.
Through this FHA loan program, also referred to as Section 245, those who
have limited incomes are able to purchase a home and make mortgage payments
that will grow along with their earning potential.
Those who are considering using a Graduated Payment Mortgage to purchase
a home should keep in mind that while their monthly payments to principal
and interest will start small, they will increase substantially each year
for up to ten years, depending upon the payment plan selected.
HOW IT WORKS
Through this and other types of FHA loan programs, the lender helps low and
moderate-income families purchase homes by keeping the initial costs down.
By serving as an umbrella under which lenders have the confidence to extend
loans to those who may not meet conventional loan requirements, FHA mortgage
insurance allows individuals to qualify who may have been previously denied
for a home loan by conventional underwriting guidelines. It also protects
lenders against loan default on mortgages for properties that include manufactured
homes, single-family and multifamily properties, and some health-related
facilities. Through the Graduated Payment Mortgage program first time homebuyers
and others with limited incomes can tailor their monthly mortgage payments
to fit their expanding incomes therefore allowing them to purchase a home
sooner than they would be able to through conventional financing programs.
AVAILABLE ASSISTANCE Of the five FHA Graduated Payment Mortgage plans, three
of them allow mortgage payments to increase at a rate of 2.5 percent, 5 percent,
or 7.5 percent in the first 5 years of the loan. Through the other two plans,
payments increase at a rate of 2 to 3 percent annually over 10 years. Beginning
in the sixth year of the 5 year plans and in the eleventh year of the 10
year plans, payments stay the same for the remaining years of the mortgage.
FHA mortgages that start with a greater rate of increase over a longer period
will have lower payments in the early years.
It is important that while considering this method of financing, homebuyers
take the time to critically assess their potential for increased income to
offset the rising mortgage payments. They also need to recognize that over
the life of the mortgage, they will pay more in interest than they would
have had they chosen a mortgage with payments that remained the same over
the life of the loan. ELIGIBILITY
Graduated Payment Mortgages are available to anyone who anticipates their
earnings to increase substantially and intends to use the mortgaged property
as their primary residence.
