Mortgages Other : HUD and FHA Help
What is the U.S. Department of Housing and Urban Development?
Also known as HUD, the U.S. Department of Housing and Urban Development was established in 1965 to develop national policies and programs to address housing needs in the U.S. One of HUD's primary missions is to create a suitable living environment for all Americans by developing and improving the country's communities and enforcing fair housing laws
How does Hud help homebuyers and homeowners?
HUD helps people by administering a variety of programs that develop and support affordable housing. Specifically, HUD plays a large role in homeownership by making loans available for lower- and moderate-income families through its FHA mortgage insurance program and its HUD Homes program. HUD owns homes in many communities throughout the U.S. and offers them for sale at attractive prices and economical terms. HUD also seeks to protect consumers through education, Fair Housing Laws, and housing rehabilitation initiatives.
What is the FHA?
Now an agency within HUD, the Federal Housing Administration was established in 1934 to advance opportunities for Americans to own homes. By providing private lenders with mortgage insurance, the FHA gives them the security they need to lend to first-time buyers who might not be able to qualify for conventional loans. The FHA has helped more than 26 million Americans buy a home.
How can the FHA assist me in buying a home?
The FHA works to make homeownership a possibility for more Americans. With the FHA, you don't need perfect credit or a high-paying job to qualify for a loan. The FHA also makes loans more accessible by requiring smaller down payments than conventional loans. In fact, an FHA down payment could be as little as a few months rent. And your monthly payments may not be much more than rent.
How is the FHA funded?
Lender claims paid by the FHA mortgage insurance program are drawn from the Mutual mortgage Insurance fund. This fund is made up of premiums paid by FHA-insured loan borrowers. No tax dollars are used to fund the program.
Who can qualify for FHA loans?
anyone who meets the credit requirements, can afford the mortgage payments and cash investment, and who plans to use the mortgaged property as a primary residence may apply for an FHA-insured loan.
What is the FHA loan limit?
FHA loan limits vary throughout the country, from $115,200 in low-cost areas to $208,800 in high-cost areas. The loan maximums for multi-unit homes are higher than those for single units and also vary by area.
Because these maximums are linked to the conforming loan limit and average area home prices, FHA loan limits are periodically subject to change. Ask your lender for details and confirmation of current limits.
What are the steps involved in the FHA loan process?
With the exception of a few additional forms, the FHA loan application process is similar to that of a conventional loan. With new automation measures, FHA loans may be originated more quickly than before. And, if you don't prefer a face-to-face meeting, you can apply for an FHA loan via mail, telephone, the Internet, or video conference.
How much income do I need to have to qualify for an FHA loan?
There is no minimum income requirement. But you must prove steady income for at least three years, and demonstrate that you've consistently paid your bills on time.
What qualifies as an income source for the FHA?
Seasonal pay, child support, retirement pension payments, unemployment compensation, VA benefits, military pay, Social Security income, alimony, and rent paid by family all qualify as income sources. Part-time pay, overtime, and bonus pay also count as long as they are steady. Special savings plans-such as those set up by a church or community association - qualify, too. Income type is not as important as income steadiness with the FHA.
Can I carry debt and still qualify for the FHA loans?
Yes. Short-term debt doesn't count as long as it can be paid off within 10 months. And some regular expenses, like child care costs, are not considered debt. Talk to your lender or real estate agent about meeting the FHA debt-to-income ratio.
What is the debt-to-income ratio for FHA loans?
The FHA allows you to use 29% of your income towards housing costs and 41% towards housing expenses and other long-term debt. With a conventional loan, this qualifying ratio allows only 28% toward housing and 36% towards housing and other debt
Can I exceed this ratio?
You may qualify to exceed if you have:
- a large down payment
- a demonstrated ability to pay more toward your housing expenses
- substantial cash reserves
- net worth enough to repay the mortgage regardless of income
- evidence of acceptable credit history or limited credit use
- less-than-maximum mortgage terms
- funds provided by an organization
- a decrease in monthly housing expenses
How large a down payment do I need with an FHA loan?
You must have a down payment of at least 3% of the purchase price of the home. Most affordable loan programs offered by private lenders require between a 3%-5% down payment, with a minimum of 3% coming directly from the borrower's own funds.
What can I use to pay the down payment and closing costs of an FHA loan?
Besides your own funds, you may use cash gifts or money from a private savings club. If you can do certain repairs and improvements yourself, your labor may be used as part of a down 8 payment (called -sweat equity"). If you are doing a lease purchase, paying extra rent to the seller may also be considered the same as accumulating cash.
How does my credit history impact my ability to qualify?
The FHA is generally more flexible than conventional lenders in its qualifying guidelines. In fact, the FHA allows you to re-establish credit if:
- two years have passed since a bankruptcy has been discharged
- all judgments have been paid
- any outstanding tax liens have been satisfied or appropriate arrangements have been made to establish a repayment plan with the IRS or state Department of Revenue
- three years have passed since a foreclosure or a deed-in-lieu has been resolved
Can I quaify for an FHA loan without a credit history?
Yes. If you prefer to pay debts in cash or are too young to have established credit, there are other ways to prove your eligibility. Talk to your lender for details.
What types of closing costs are associated with FHA-Insured loans?
Except for the addition of an FHA mortgage insurance premium, FHA closing costs are similar to those of a conventional loan outlined in Question 63. The FHA requires a single, up-front mortgage insurance premium equal to 2.25% of the mortgage to be paid at closing (or 1.75% if you complete the HELP program- see Question 91). This initial premium may be partially refunded if the loan is paid in full during the first seven years of the loan term. After closing, you will then be responsible for an annual premium - paid monthly - if your mortgage is over 15 years or if you have a 15-year loan with an LTV greater than 90%.
Can I roll closing costs into my FHA loan?
No. Though you can't roll closing costs into your FHA loan, you may be able to use the amount you pay for them to help satisfy the down payment requirement. Ask your lender for details.
Are FHA loans assumable?
Yes. You can assume an existing FHA-insured loan, or, if you are the one deciding to sell, allow a buyer to assume yours. Assuming a loan can be very beneficial, since the process is stream- lined and less expensive compared to that for a new loan. Also, assuming a loan can often result in a lower interest rate. The application process consists basically of a credit check and no property appraisal is required. And you must demonstrate that you have enough income to support the mortgage loan. In this way, qualifying to assume a loan is similar to the qualification requirements for a new one.
What should I do if I can't make a payment on a loan?
Call or, Write to your lender as soon as possible.,Clearly explain the situation and be prepared to provide him or her with financial information.
Are there any options if I fall behind on my loan payments?
Yes. Talk to your lender or a HUD-approved counseling agency for details. Listed below are a few options that may help you get back on track.
For conventional loans:
Talk to your lender about specific loss mitigation options. Work directly with him or her to request a "workout packet." A secondary lender, like Fannie Mae or Freddie Mac, may have purchased your loan. Your lender can follow the appropriate guidelines set by Fannie or Freddie to determine the best option for your situation.
Fannie Mae does not deal directly with the borrower. They work with the lender to deter-mine the loss mitigation program that best fits your needs.
Freddie Mac, like Fannie Mae, will usually only work with the loan servicer. However, if you encounter problems with your lender during the loss mitigation process, you can coil customer service for help at 1-800-FREDDIE (1-800-373-3343).
In any loss mitigation situation, it is important to remember a few helpful hints:
- Explore every reasonable alternative to avoid losing your home, but beware of scams. For example, watch out for:
Equity skimming: a buyer offers to repay the mortgage or sell the property if you sign over the deed and move out.
Phony counseling agencies: offer counseling for a fee when it is often given at no charge.
- Don't sign anything you don't understand.
For FHA loans:
- Keep living in your home to qualify for assistance.
- Contact a HUD-approved housing counseling agency (1-800-569-4287 or TDD: 1-800-877-8339) and cooperate with the counselor/lender trying to help you.
- HUD has a number of special loss mitigation programs available to help you:
- Special Forbearance: Your lender will arrange for a revised repayment plan which may Include temporary reduction or suspension of payments; you can qualify by having an Involuntary reduction in your Income or Increase In living expenses.
- mortgage Modification: Allows refinance debt and/or extend the term of the your mortgage loan which may reduce your monthly payments; you can qualify if you have recovered from financial problems, but net Income Is less than before.
- Partial Claim: Your lender maybe able to help you obtain an interest-free loan from HUD to bring your mortgage current.
- Pre-foreclosure Sale: Allows you to sell your.property and pay off your mortgage loan,to avoid foreclosure.
- Deed-in lieu of Foreclosure: Lets you voluntarily "give back" your property to the lender; it won't save your house but will help you avoid the costs, time, and effort of the foreclosure process.
- If you are having difficulty with an-uncooperative lender or feel your loan servicer is not providing you with the most effective loss mitigation options, call the FHA Loss Mitigation Center at 1-888-297-8685 for additional help.
Types of FHA Loans:
What is a 203(b) loan?
This is the most commonly used FHA program. it offers a low down payment, flexible qualifying guidelines, limited lender's fees, and a maximum loan amount.
This is a loan that enables the homebuyer to finance both the purchase and rehabilitation of a home through a single mortgage. A portion of the loan is used to pay off the seller's existing mortgage and the remainder is placed in an escrow account and released as rehabilitation is completed. Basic guidelines for 203(k) loans are as follows:
- The home must be at least one year old.
- The cost of rehabilitation must be at least $5,000, but the total property value - including the cost of repairs - must fall within the FHA maximum mortgage limit.
- The 203(k) loan must follow many of the 203(b) eligibility requirements.
- Talk to your lender about specific improvement, energy efficiency, and structural guidelines.
What is an energy efficient mortgage (EEM)?
The Energy Efficient mortgage allows a homebuyer to save future money on utility bills. This is done by financing the cost of adding energy-efficiency features to a new or existing home as part of an FHA-insured home purchase. The EEM can be used with both 203(b) and 203(k) loans. Basic guidelines for EEMs are as follows:
- The cost of improvements must be determined by a Home Energy Rating System or by an energy consultant. This cost must be less than the anticipated savings from the improvements.
- One- and two-unit new or existing homes are eligible; condos are not.
- The improvements financed may be 5% of property value or $4,000, whichever is greater. The total must fall within the FHA loan limit.
What is the FHA bridal registry program?
Just as you might register at a department store for wedding gifts, the Bridal Registry program allows couples to register with a lender and open up an interest-bearing account. Family and friends can deposit wedding gifts of cash into this account. These gifts can then be applied toward a down payment on a home. Ask your lender for details.
What is a Title 1 loan?
Given by a Lender and insured by the FHA, a Title I loan is used to make non-luxury renovations and repairs to a home. It offers a manageable interest rate and repayment schedule. Loans are limited to between $5,000 and 20,000. If the loan amount is under 7,500, no lien is required against your home. Ask your lender for details.
What other loan products or programs does the FHA offer?
The FHA also insures loans for the purchase or rehabilitation of manufactured housing, condominiums, and cooperatives. It also has special programs for urban areas, disaster victims, and members of the armed forces. Insurance for ARMS is also available from the FHA.
How can I obtain FHA-insiured loan?
Contact an FHA-approved lender such as a participating mortgage company, bank, savings and loan association, or thrift. For more information on the FHA and how you can obtain an FHA loan, visit the HUD web site at http://www.hud.gov or call a HUD-approved counseling agency at 1-800-569-4287 or TDD: 1-800-877-8339.
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