Nov 132014
 

Federal Housing Authority – FHA Loan Programs

FHA loans

Participating lenders are insured by the Federal Housing Authority FHA against incurring foreclosure losses as per an authorization by the Department of Housing and Urban Development (HUD).

The caveat is that only loans that are made to borrowers that meet loan limits and guidelines set by congress to qualify, and they can only be for the purchase and occupying of primary residences.

30 or 15 year fixed rate programs are available as well as 1 year adjustable rate (ARM) loans with conservative 1% annual and 5% lifetime caps.  Loan amount limits vary by state and county.

These types of programs, referred to as conventional loans, have some very attractive features compared to their non-conventional counterparts:

  • Borrowers only need a down-payment of 3.5%, which can be gifted or loaned
  • Qualifying FICO credit scores can be in the mid 600s which are very low
  • Borrowers can qualify only 2 years after a chapter 7 and 1 year after a chapter 13 bankruptcy
  • The loans can be assumed by home buyers who have qualifying credit portfolios
  • The pre-payment of the loan is allowed without penalty
  • Borrower closing costs can be included in the loan or can be paid by the seller.

The difficulty with these loans is:

  • The home that is being purchased must pass a relative stringent inspection test.
  • An up-front mortgage insurance premium (UFMIP) of 1.75% of the loan amount must be paid at the time of closing, although it can be rolled into the loan.
  • An annual mortgage insurance premium (MIP) of 1.35% or less of the loan amount must also be paid. The actual amount to be paid depends on the amount of the loan compared to its appraised value (LTV) and also if it is a 30 or 15 year term.

The FHA also offers variations to the program. One such variation has afforded opportunities for the greening of existing homes. Under the FHA 203K program, buyers can include the cost of improving the home into the purchase financing. In this event, the appraiser is allowed to appraise the value of the home at its after improvement value. This is so that the borrower can borrow the funds to purchase the home as well as the required funds to make the improvements. At closing, the seller receives the purchase money while the improvement money is held in escrow and paid to the contractors after the work has been completed. See more information about how this opportunity makes it possible to buy any home green.

Finally all FHA loans qualify for an Energy Efficient Mortgage (EEM) which allows a borrower to borrow additional funds to make the home energy efficient. The main feature of this enhancement to the FHA loan is that it does not require additional qualification. Instead the home qualifies because of the lowered cost of ownership.

Hopefully, the above information has been helpful to you. If you have not already done so, please visit my “can you afford mortgage financing” page  to get you going. You will then have an idea of whether you can afford mortgage financing, and if so, take the next step, which will be to start talking to a mortgage loan officer.

Also please see our FHA One-time close construction loan information as well as our Green Home Financing page.

Our services are always FREE to Buyers, and we contribute $500 towards closing costs if you buy through us, as well as $250 toward our Switch to Green, Switch it Forward Fund, to help fight poverty and climate change.

Let us show you how we can be Your Green Dream Team to help you to Live in a High Performance Green Home, that will Save You Money and help you to Pay Your Mortgage Off Years Earlier, while at the same time, live in a home that is Healthier, More Comfortable, Safer and Kinder To The Earth.

Thank you for visiting. Please leave a comment below and then check out the rest of our BLOG. We look forward to making Green Home living your reality.

Marius J Smook – Licensed Real Estate Eco-Broker, LEED AP for HOMES, Home Energy Rater.

 November 13, 2014

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