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Government FHA Lending Programs: Do You Qualify?
Author David Schneider | Dec 31,2007
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Buying a home is a complex process and a major financial commitment. The Federal Housing Administration (FHA), under the U.S. Department of Housing and Urban Development (HUD), exists to help people who may not qualify for traditional mortgages. With mortgage programs covering a wide spectrum of home buying situations, FHA loans may be perfect for you. Let’s examine the different FHA lending programs and how they work.
FHA Overview
The FHA is a government entity that arose following the Great Depression as a way to help people purchase homes and encourage economic stability. These loan programs became so vital that the FHA continues to exist today.
A common misconception about FHA is that it makes loans directly to homebuyers. In actuality, an FHA functions as an insurer to mortgage loan companies. Traditionally, mortgage loans are risks for lenders. FHA protects lenders from some of the risk, allowing them to loosen the requirements and make loans to more people with different financial backgrounds.
FHA mortgages are available through private lenders and mortgage companies for people who may not otherwise qualify for a home loan. These may be first-time buyers, those with low to moderate incomes or damaged credit. Features of FHA mortgage programs include lower down payments (often just 3 percent) and lower closing costs.
The criteria for an FHA loan can vary, but generally includes the following: you must be a U.S. resident with stable income for at least two to three years, no bankruptcies in the past two years, no home foreclosures in the past three years and any tax debts or tax liens against you are in satisfactory repayment standing. The mortgage amount cannot exceed FHA limits. However, homes that cost more are eligible if obtaining additional financing.
Finally, housing costs cannot be greater than 29 percent of your monthly income. There is considerable flexibility in qualifying for FHA loans, so even if you think you might not qualify, it’s worth talking to a lender to find out more.
FHA Lending Programs
FHA offers mortgage loans for almost any type of owner-occupied housing. If you see a program that interests you, contact HUD’s Housing Counseling Clearinghouse at (800) 569-4287 for a list of FHA-approved lenders in your state.
Traditional Mortgage Loans and Fixed-Rate Mortgages
Fixed-rate mortgages backed by FHA operate just like other private lender fixed-rate mortgages. The interest charged on the home loan is stable for the life of the loan, and will not fluctuate with the market. In the FHA fixed-rate mortgage program, borrowers also qualify for lower down payments and closing costs. This is one of the most popular programs available through FHA, particularly when interest rates drop and homebuyers can lock in a favorable rate.
Traditional Mortgage Loans and Adjustable-Rate Mortgages
The attraction of an adjustable-rate mortgage is that at the beginning of the loans, the interest rate and payments are low. Typically, the rate will increase after a few years and reset to an adjustable rate. This type of mortgage does not offer the stability of a fixed rate, but the initial lower payments make it attractive to those anticipating better credit and higher income potential in the future.
Traditional Mortgage Loans and Graduated Payment Mortgages
Similar to an adjustable-rate mortgage, the FHA-backed graduated payment program allows homebuyers to start out with a low monthly payment that increases over time. The difference is that borrowers understand the graduated steps beforehand. Although this program allows buyers to own a home sooner, they may end up paying more in interest over the life of the loan.
Other Mortgage Loans -- Renovation Loan
Homes that need repairs may be eligible for an FHA renovation loan. This program allows the buyer to finance the purchase price and construction costs of the home. The loan amount will also include a contingency fee for construction expenses not foreseen at the outset. Renovation plans, appraisals and cost estimates must be included with the loan application. Otherwise, the application and payment procedures are the same as with traditional FHA mortgages.
Energy-Efficient Mortgages
FHA has recognized that energy-efficient homes are less expensive to own and better for the environment. To encourage energy efficiency, FHA offers the energy-efficient mortgage for new purchases and home refinances. The program allows up to $8,000 in energy improvements to be included in the mortgage. Lower utility bills offset the homeowner’s higher mortgage payment.
Manufactured/Mobile Home Loan
FHA-backed financing is available for purchase of manufactured or mobile homes, whether located on owned property or in a fee-based mobile home park. Programs are equivalent to the traditional mortgage programs, with few additional requirements.
Condominium Loan
Loans for purchase of a condo unit are available within the FHA-backed mortgage programs. Condos must contain at least four units, and may be detached, semidetached, walk-ups or elevator structures. Restrictions may apply if the condominium complex was converted from rental housing within the past year.
Other FHA Programs -- FHA Refinancing
FHA mortgage refinancing is available to those who have existing FHA mortgages and wish to take advantage of lower interest rates and reduce their monthly principal and interest payments. In the mortgage market, lenders can package this program differently, either by offering a no-closing-cost option, or by charging closing costs out-of-pocket and not adding them to the mortgage balance.
Reverse Mortgages
An FHA-backed reverse mortgage is a financial tool that allows homeowners over age 62 to withdraw the equity in their homes as a cash payment. Monthly payments on the reverse mortgage are not required. The account settles once the homeowner no longer uses the home as the primary residence. Any remaining equity in the home belongs to the homeowner or the estate.
With an FHA reverse mortgage, your home cannot go into foreclosure. You can apply for an FHA reverse mortgage even if your existing mortgage has no affiliation with FHA.
Buying a home is a complex process and a major financial commitment. The Federal Housing Administration (FHA), under the U.S. Department of Housing and Urban Development (HUD), exists to help people who may not qualify for traditional mortgages. With mortgage programs covering a wide spectrum of home buying situations, FHA loans may be perfect for you. Let’s examine the different FHA lending programs and how they work.
FHA Overview
The FHA is a government entity that arose following the Great Depression as a way to help people purchase homes and encourage economic stability. These loan programs became so vital that the FHA continues to exist today.
A common misconception about FHA is that it makes loans directly to homebuyers. In actuality, an FHA functions as an insurer to mortgage loan companies. Traditionally, mortgage loans are risks for lenders. FHA protects lenders from some of the risk, allowing them to loosen the requirements and make loans to more people with different financial backgrounds.
FHA mortgages are available through private lenders and mortgage companies for people who may not otherwise qualify for a home loan. These may be first-time buyers, those with low to moderate incomes or damaged credit. Features of FHA mortgage programs include lower down payments (often just 3 percent) and lower closing costs.
The criteria for an FHA loan can vary, but generally includes the following: you must be a U.S. resident with stable income for at least two to three years, no bankruptcies in the past two years, no home foreclosures in the past three years and any tax debts or tax liens against you are in satisfactory repayment standing. The mortgage amount cannot exceed FHA limits. However, homes that cost more are eligible if obtaining additional financing.
Finally, housing costs cannot be greater than 29 percent of your monthly income. There is considerable flexibility in qualifying for FHA loans, so even if you think you might not qualify, it’s worth talking to a lender to find out more.
FHA Lending Programs
FHA offers mortgage loans for almost any type of owner-occupied housing. If you see a program that interests you, contact HUD’s Housing Counseling Clearinghouse at (800) 569-4287 for a list of FHA-approved lenders in your state.
Traditional Mortgage Loans and Fixed-Rate Mortgages
Fixed-rate mortgages backed by FHA operate just like other private lender fixed-rate mortgages. The interest charged on the home loan is stable for the life of the loan, and will not fluctuate with the market. In the FHA fixed-rate mortgage program, borrowers also qualify for lower down payments and closing costs. This is one of the most popular programs available through FHA, particularly when interest rates drop and homebuyers can lock in a favorable rate.
Traditional Mortgage Loans and Adjustable-Rate Mortgages
The attraction of an adjustable-rate mortgage is that at the beginning of the loans, the interest rate and payments are low. Typically, the rate will increase after a few years and reset to an adjustable rate. This type of mortgage does not offer the stability of a fixed rate, but the initial lower payments make it attractive to those anticipating better credit and higher income potential in the future.
Traditional Mortgage Loans and Graduated Payment Mortgages
Similar to an adjustable-rate mortgage, the FHA-backed graduated payment program allows homebuyers to start out with a low monthly payment that increases over time. The difference is that borrowers understand the graduated steps beforehand. Although this program allows buyers to own a home sooner, they may end up paying more in interest over the life of the loan.
Other Mortgage Loans -- Renovation Loan
Homes that need repairs may be eligible for an FHA renovation loan. This program allows the buyer to finance the purchase price and construction costs of the home. The loan amount will also include a contingency fee for construction expenses not foreseen at the outset. Renovation plans, appraisals and cost estimates must be included with the loan application. Otherwise, the application and payment procedures are the same as with traditional FHA mortgages.
Energy-Efficient Mortgages
FHA has recognized that energy-efficient homes are less expensive to own and better for the environment. To encourage energy efficiency, FHA offers the energy-efficient mortgage for new purchases and home refinances. The program allows up to $8,000 in energy improvements to be included in the mortgage. Lower utility bills offset the homeowner’s higher mortgage payment.
Manufactured/Mobile Home Loan
FHA-backed financing is available for purchase of manufactured or mobile homes, whether located on owned property or in a fee-based mobile home park. Programs are equivalent to the traditional mortgage programs, with few additional requirements.
Condominium Loan
Loans for purchase of a condo unit are available within the FHA-backed mortgage programs. Condos must contain at least four units, and may be detached, semidetached, walk-ups or elevator structures. Restrictions may apply if the condominium complex was converted from rental housing within the past year.
Other FHA Programs -- FHA Refinancing
FHA mortgage refinancing is available to those who have existing FHA mortgages and wish to take advantage of lower interest rates and reduce their monthly principal and interest payments. In the mortgage market, lenders can package this program differently, either by offering a no-closing-cost option, or by charging closing costs out-of-pocket and not adding them to the mortgage balance.
Reverse Mortgages
An FHA-backed reverse mortgage is a financial tool that allows homeowners over age 62 to withdraw the equity in their homes as a cash payment. Monthly payments on the reverse mortgage are not required. The account settles once the homeowner no longer uses the home as the primary residence. Any remaining equity in the home belongs to the homeowner or the estate.
With an FHA reverse mortgage, your home cannot go into foreclosure. You can apply for an FHA reverse mortgage even if your existing mortgage has no affiliation with FHA. |
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