|
home :: FHA Loans
FHA Loans Lower Fees
and Raise Acceptance
Article By: Gary Carraghan
FHA mortgage insurance programs assist low and
moderate income families become homeowners by lowering some of the
costs of their residential
mortgage loans. FHA loans encourage 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.
Today’s FHA program is the adaptation of the
very same program which has helped save homeowners from default
since the 1930s. Today, One to Four Family Mortgage Insurance is
still an important tool allowed by the federal government to expand
home ownership opportunities for
first time homebuyers and
other borrowers who would not otherwise qualify for conventional
loans on affordable terms.
Several amendments have been made to the FHS in
the nearly eighty years it has been a part of United States federal
policy. Most notable to these changes is evident in the 203(b)
clause added in the 1980s which allows numerous advantages to the
first time and disadvantaged home buyer.
In contrast to conventional mortgage products,
which frequently require down payments of 10% 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% . 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.
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.
Finally, 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.
Along with a renovation of the FHA regulations
during the 1980s to accommodate for an ever-evolving real estate
market, the federal government adapted what’s known as a
‘streamline’ refinancing program. This 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.
There are a few basic requirements to qualify
for the streamline option. The mortgage must already be insured by
FHA, the mortgage to be renewed must be current and paid on time to
date, the refinance is to result
in a lowering of the borrower’s monthly principal and interest
payments, and no cash may be taken out on mortgages refinanced using
the streamline refinance process.
Companies may offer streamline refinances in
several ways. Some 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.
Also, 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.
Once you do, or if you have ever fully paid off a
home backed by FHA, you may be owed back compensation from the
government. 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.
In addition to the more standard mortgages
available in this program, the federal government has also allowed
for more creative forms of home owners who could qualify, at least
in part, from FHA funding. For example, FHA’s energy efficient
mortgage 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
FHA 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.
One of the most enjoyed benefits of the FHA,
though, is that the down payment for an FHA mortgage can be 100%
gift funds. Verification of the source of gift money is not required
to benefit from this particular aspect of the legislation. 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. 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. Additionally, proof of initial
deposit is required.
The Federal Housing Administration is one of the
most successful government programs in American history and over the
decades during which the program has been in existence, thousands
upon thousands of home owners have been able to procure the home of
their dreams when it may not have been possible otherwise.
About the Author
Gary Carraghan is a
successful author and regular contributor to
www.super-mortgages.com who provides money-saving tips on
mortgages. His other articles include interesting topics such as
|
