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.
The mortgage insurance premium paid on an
FHA loan is always significantly higher than on a conventional program.
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.
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:
- The
mortgage to be refinanced must already be FHA insured.
- 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.
- The
new loan amount may not exceed the original amount borrowed.
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 without an appraisal and, thus, closing costs may not be
included in the new mortgage amount.
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. 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 branch
for complete information.
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.
Refunds
on FHA Loans
You are entitled to a refund of the 1.5%
upfront MIP premium prorated over the first five years of your FHA
mortgage.
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 20026-3699. Or you can look for your
name with the HUD
Refund Search Form
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 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 3 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.
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.
Energy
Efficient Mortgages
What is the
purpose of this program?
Provides mortgage insurance for a person to purchase or refinance a
principal residence and incorporate the cost of energy efficient
improvements into the mortgage. The mortgage loan is funded by a lending
institution, such as a mortgage company, bank, savings and loan
association and the mortgage is insured by HUD.
What are
the eligibility requirements?
- Borrowers
are eligible for approximately 97% financing. Borrowers are able to
finance closing costs and the up front mortgage insurance premium
into the mortgage. Borrowers are also responsible for paying an
annual premium.
- Eligible
properties are one to two existing units and new construction.
- The
cost of the energy efficient improvements that may be eligible for
financing into the mortgage is the greater of 5% percent of the
property's value (not to exceed $8,000) or $4,000.
- To
be eligible for inclusion in the mortgage, the energy efficient
improvements must be cost effective, meaning that the total cost of
the improvements is less than the total present value of the energy
saved over the useful life of the energy improvement.
- The
cost of the energy improvements and estimate of the energy savings
must be determined by a home energy rating system (HERS) or energy
consultant. Up to $200 of the cost of the energy inspection report
may be included in the mortgage.
HUD
Reverse Mortgage Program
Homeowners 62 and older who have paid off
their mortgages or have only small mortgage balances remaining are
eligible to participate in HUD's reverse mortgage program. The program
allows homeowners to borrow against the equity in their homes.
Homeowners can receive payments in a lump
sum, on a monthly basis (for a fixed term or for as long as they live in
the home), or on an occasional basis as a line of credit. Homeowners
whose circumstances change can restructure their payment options.
Unlike ordinary home equity loans, a HUD
reverse mortgage does not require repayment as long as the borrower
lives in the home. Mortgage companies recover their principal, plus
interest, when the home is sold. The remaining value of the home goes to
the homeowner or to his or her survivors. If the sales proceeds are
insufficient to pay the amount owed, HUD will pay the company the amount
of the shortfall. The Federal Housing Administration, which is part of
HUD, collects an insurance premium from all borrowers to provide this
coverage.
The size of reverse mortgage loans is
determined by the borrower's age, the interest rate, and the home's
value. The older a borrower, the larger the percentage of the home's
value that can be borrowed.
For example, based on a loan at an
interest rate of 9 percent, a 65-year-old could borrow up to 26 percent
of the home's value, a 75-year-old could borrow up to 39 percent of the
home's value, and an 85-year-old could borrow up to 56 percent of the
home's value.
There are no asset or income limitations
on borrowers receiving HUD's reverse mortgages.
There are also no limits on the value of
homes qualifying for a HUD reverse mortgage. However, the amount that
may be borrowed is capped by the maximum FHA mortgage limit for the
area, which varies from $81,548 to $160,950, depending on local housing
costs. As a result, owners of higher-priced homes can't borrow any more
than owners of homes valued at the FHA limit.
HUD's reverse mortgage program collects
funds from insurance premiums charged to borrowers. Senior citizens are
charged 2 percent of the home's value as an up-front payment plus
one-half percent on the loan balance each year. These amounts are
usually paid by the mortgage company and charged to the borrower's
principal balance.
FHA's reverse mortgage insurance makes
HUD's program less expensive to borrowers than the smaller reverse
mortgage programs run by private companies without FHA insurance.
State
FHA Loan Limits |
