Federal Housing Administration FAQs.
Are you considering purchasing a home in Texas and wondering if FHA loans suit you? Whether you’re a first-time homebuyer or already familiar with the housing market, it’s important to thoroughly understand the Federal Housing Administration (FHA) loan program. Here’s everything you need to know about FHA loans to make an informed decision.
What is an FHA Loan?
An FHA loan is a mortgage insured by the Federal Housing Administration (FHA). This type of loan offers buyers greater flexibility and more lenient credit standards than most other mortgages. On top of this, borrowers only need to bring 3.5% of the purchase price as a down payment, making it easier and more affordable for many buyers to become homeowners.
What are the Benefits of an FHA Loan?
Some key benefits of an FHA loan include lower interest rates, fewer income and debt ratio restrictions, smaller down payments, and less stringent credit requirements. With fewer restrictions on down payments, FHA loans also make it easier for individuals and families who may not have the resources to make a large down payment on a conventional loan. On top of this, FHA loans are assumable, meaning if you ever decide to sell your house, you may be able to pass on your low-interest rate to the buyer.
Who Qualifies for an FHA Loan?
To qualify for an FHA loan, borrowers must meet certain criteria. Most importantly, they must have a minimum credit score of 580 and a steady and reliable source of income. Borrowers must also present proof of their employment history and documents proving repayment of debt obligations like student loans or car payments. Borrowers must also show that they have enough cash reserves to cover at least three months’ mortgage payments.
How does FHA work?
The U.S. Department of Housing and Urban Development offers a variety of loan insurance programs through the Federal Housing Administration, which requires approximately 3 to 5 percent cash down. FHA loan limits vary depending on the county where the property is located. Private lenders originate FHA loans administered by HUD. For more information, contact lenders who offer FHA loans or a regional HUD office.
Resources:
- “FHA Forms, Booklets, and Publications,” U.S. Department of Housing and Urban Development Printing Branch, Room B-100, 451 7th St., Washington, DC 20410; call (800)767-7468.
Which lenders offer FHA loans?
Lenders who handle Federal Housing Administration loans typically advertise in the Yellow Pages under “real estate loans” and in the real estate sections of newspapers. FHA also supplies limited lists of approved lenders. For general qualifications and program details, see the FHA brochure “How to Qualify for an FHA Loan.” To order, write the U.S. Department of Housing and Urban Development, Printing Branch, Room B-100, 451 7th St., Washington, DC 20410; (800) 767-7468.
Do FHA loans require impound accounts?
According to the “Realty Bluebook,” 30th Ed., Dearborn Financial Publishing, Chicago; 1993: “Under FHA financing, it is the lender’s responsibility to ascertain that property taxes and hazard insurance premiums are paid when due. Lenders, therefore, will insist that the monthly payments include proportionate amounts for taxes and insurance.”
How do you find government-repossessed homes?
The U.S. Department of Housing and Urban Development acquires properties from lenders who foreclose on mortgages insured by HUD. These properties are available for sale to both homeowner-occupants and investors.
You can only purchase HUD-owned properties through a licensed real estate broker. HUD will pay the broker’s commission up to 6 percent of the sales price.
Down payments vary depending on whether the property is eligible for FHA insurance. If not, payments range from the conventional market’s 5 to 20 percent.
One caution. HUD homes are sold “as is,” meaning limited repairs have been made, but no structural or mechanical warranties are implied.
What are the Rates for FHA and VA loans?
There are no set interest rates for FHA and VA loans. The FHA stopped regulating rates in 1983, and the VA followed suit soon after. Shop around for the best rate.
Can I get a HUD home for as little as $100 down?
If you are strapped for cash and looking for a bargain, you may be able to buy a foreclosure property acquired by the U.S. Department of Housing and Urban Development for as little as $100 down.
With HUD foreclosures, down payments vary depending on whether the property is eligible for FHA insurance. If not, payments range from 5 to 20 percent. But the down payment can go much lower when the property is FHA-insured.
Each offer must be accompanied by an “earnest money” deposit equal to 5 percent of the bid price, not to exceed $2,000 but not less than $500.
The U.S. Department of Veterans Affairs also offers foreclosure properties that can be purchased directly from the VA, often well below market value and with a down payment amount as low as 2 percent for owner-occupants. Investors may be required to pay up to 10 percent of the purchase price as a down payment. This is because the VA guarantees home loans and often ends up owning the property if the veteran defaults.
If you want to purchase a VA foreclosure, call 1-800-827-1000 to request a current listing. About 100 new properties are listed every two weeks.
You should know that foreclosure properties are sold “as is,” meaning limited repairs have been made, but no structural or mechanical warranties are implied.
Are there programs for fixer-uppers?
If you need a home loan to buy a “fixer-upper” and remodel it, look at the U.S. Department of Housing and Urban Development’s Section 203(K) loan program. The program is designed to facilitate major structural rehabilitation of houses with one to four more than one-year-old units. Condominiums are not eligible.
A 203(K) loan is usually done as a combination loan to purchase a “fixer-upper” property “as is” and rehabilitate it or to refinance a temporary loan to buy the property and do the rehabilitation. It can also be done as a rehabilitation-only loan.
Investors must put 15 percent down, while owner-occupants must come up with only 3 to 5 percent. HUD requires that a minimum of $5,000 be spent on improvements.
Two appraisals are required. Plans and specifications for the proposed work must be submitted for architectural review and cost estimation. Mortgage proceeds are advanced periodically during rehabilitation to finance construction costs.
Are there gov’t programs for rehab?
The U.S. Department of Housing and Urban Development’s Section 203 (K) rehabilitation loan program is designed to facilitate major structural rehabilitation of houses with one to four more than one-year-old units. Condominiums are not eligible.
The 203(K) loan is usually a combination loan to purchase a fixer-upper property “as is” and rehabilitate it or refinance a temporary loan to buy the property and do the rehabilitation. It can also be done as a rehabilitation-only loan.
Plans and specifications for the proposed work must be submitted for architectural review and cost estimation. Mortgage proceeds are advanced periodically during rehabilitation to finance construction costs.
Call HUD at (202) 708-2720 for a list of participating lenders.
If you are a veteran, loans from the U.S. Department of Veterans Affairs also can be used to buy a home, build a home, improve a home or to refinance an existing loan. VA loans frequently offer lower interest rates than ordinarily available with other kinds of loans. The first step to qualify for a loan is to apply for a Certificate of Eligibility.
Another program is the Federal Housing Administration’s Title 1 FHA loan program.
Resources:
- “Rehab a Home With HUD’s 203(K)” brochure, U.S. Department of Housing and Urban Development, 7th and D streets S.W., Washington, DC 20410.
Do you have to buy HUD homes through a realty agent?
You can only purchase a U.S. Department of Housing and Urban Development property through a licensed real estate broker. HUD will pay the broker’s commission up to 6 percent of the sales price.
Rules for a FHA Loan?
The U.S. Dept. of Housing and Urban Development offers a variety of loan insurance programs through the Federal Housing Administration, which requires approximately 3 to 4 percent cash down. There are no income requirements to qualify for a FHA mortgage. Other advantages are that FHA loans do not contain prepayment penalties, and in some cases, they are assumable by qualified purchasers.
FHA loan limits vary depending on the county where the property is located. FHA loans are originated and serviced by private lenders.
FHA does not lend money. The mortgage is made by a bank, savings and loan, mortgage company or other FHA-approved lender. In addition, FHA does not set the rates and points. The lender determines these, so it is best to shop around by calling several FHA-approved lenders.
Are FHA loans assumable?
Lenders will only permit loans with a “subject to transfer” clause to be taken over through a formal assumption process. Look to your loan agreement for specific terms. In addition, you should candidly discuss any risks with your lender, and possibly consult an attorney before signing the final agreement.
Is There Anything Else I Should Know About FHA Loans?
One thing to note when taking out an FHA loan is that you will be required to pay an upfront mortgage insurance premium (UFMIP) and an annual mortgage insurance premium (MIP). The UFMIP can be up to 1.75% of your loan amount, while the MIP is typically 0.80%-1.05% of your loan amount each year, depending on your loan term. It’s important to factor in these fees when budgeting for the purchase of your home.
