What is an FHA Loan?

In 1965 the Department of Housing and Urban Development (HUD) was formed.  Within HUD operates the Federal Housing Administration (FHA), which has the primary responsibility for administering the government home loan insurance program. This program allows a first time home buyer  who might otherwise not qualify for a home loan to obtain one because the risk is removed from the lender by FHA who insures the loan for the lender.

The most popular FHA home loan program for a first time home buyer is by far is the 203(b).  This is your standard fixed rate loan for 1-4 family owner occupied houses and only requires a minimum of 3% from the borrower.  This loan also permits 100% of their money needed to close to be a gift from a relative, non-profit organization, or government agency.

The main advantage to a FHA home loan is that the credit criteria for a first time borrower are not as strict as Conventional Loans sold to Fannie Mae (FNMA) or Freddie Mac (FHLMC). Someone who may have had a few credit problems or no traditional credit should not have a problem obtaining FHA financing. Also, FHA home loans are assumable, allowing a person to take over the mortgage without the additional cost of obtaining a new loan. In addition, the seller or lender must pay for part of the "traditional" closing costs (called non-allowable costs) while a borrower's allowable costs can partially be wrapped into the loan. The monthly mortgage insurance premium is cheaper for an FHA loan verses a conventional loan with 3% down.  Finally, FHA loans may may require less income to qualify as they will exceed the Conventional debt ratios of 28/36% as their standard is 29/41%.  To learn more about debt ratios, please see the income section.

Many people make the mistake and assume that FHA loans are only available for first time home buyers.  This is not true.  FHA loans are available to anyone, whether your first or fifth home and can be used to purchase a home or refinance a home.  If refinancing a home the current loan DOES NOT have to be an FHA loan.

The greatest disadvantage of FHA home loans is that FHA limits the loan size that a borrower can borrower   Please see the link for FHA Loan Limits in your area.  Others may try and convince you that the FHA upfront mortgage insurance premium (MIP) is a disadvantage. However this amount makes just a very small increase in the borrower's month payment and is partially refundable.  See the section on MIP refunds for more information. 

There are several notable FHA home loan programs available as characterized below. 

Click on the title to learn more about that program:

Standard fixed rate (FHA 203b)

Rehab Loan (FHA 203k)

Condominium Loans (FHA 234c)

FHA adjustable rate mortgage (FHA 251)

FHA Hybrid Adjustable Rate Loans

FHA 2-1 buydown (FHA 203b, Not Allowed on FHA 251)

Energy Efficient Mortgages Program

Reverse Mortgages for Seniors

The FHA Fixed Rate Mortgage program is by far the most common program. Fixed Rate terms may be offered for 30 years, 15 years. Some lenders may even offer 20 and 25 year terms.

While the fixed rate mortgage offers the most stability, it may also end up being more expensive than other products. Fixed Rate loans have a higher rate than the Hybrid Adjustable Loans or other regular Adjustable Rate loans.

Since many people do not keep their loan for the entire fixed period, it may be better to look at some of the other programs.

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Buying a Condo using an FHA Loan

HUD Section 234(c) of the National Housing Act provides authority to insure any mortgage covering a one-family unit in a project coupled with an undivided interest in the common areas and facilities which serve the project. The project may include dwelling units in detached, semidetached, row, garden-type, low- or high-rise structures. Generally these types of properties are referred to as Condominiums.

HUD will insures mortgagees against losses on mortgage loans used for buying a condo or to refinance individual units in eligible condominium projects provided that they meet certain guidelines.

If the Condominium is not approved then the Lender may go through the "Spot Approval" process.

The following requirements must be satisfied before a spot loan is endorsed:

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What is an FHA ARM (Adjustable Rate Loan)?

Adjustable Rate Loans are loans in which the interest rate will possibly change at some future date. The FHA ARM program has the standard 1 Year Arm and also the popular Hybrid Adjustable Rate Programs

The FHA 1 year ARM (adjustable rate mortgage) loan is one of the best adjustable rate mortgages currently available. It is available 1-4 unit homes, as well as condominiums, townhomes, and PUDs.

One benefit of the FHA 1 Year ARM is that it does not offer an initial low "teaser" rate like most other adjustable rate mortgages, therefore it will normally start at a slightly higher rate than most other adjustable loans. Thus you will most likely not have a large first adjustment.

The yearly interest can rise or decrease no more than 1% per year vs. 2% for a conventional loan.

The lifetime cap of the FHA adjustable mortgage is no more than 5% over the initial start rate vs. 6% for a conventional loan.

Therefore, a fha arm can take 5 years before reaching its maximum rate vs. a conventional loan can cap in only 3 years.

FHA's adjustable rate mortgage is based on the economic indicator index called the 1-Yr. T-Bill. You can find the current T-Bill rate on many websites like HSH Associates or in the Wall Street Journal

Index + Margin = Fully Indexed Rate
(current 1 Yr. T-Bill Rate) + (percentage, usually 2.75%) = Interest Rate

Example:

Index = 1.3%(as of Oct 2003) + Margin of 2.75% = Fully Indexed Rate = 4.05%
Other benefits of the fha arm (adjustable rate mortgage) is that you can "streamline refinance" to a FHA fixed rate mortgage at anytime.

Borrowers must qualify for one-year ARMs using the mortgage payments based upon the contract or initial interest rate plus 1 percentage point (i.e., the anticipated maximum second-year interest rate) if the loan-to-value ratio is 95 percent or greater.

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What is an FHA 2-1 Buydown?

Often times lenders will allow borrowers to temporarily "buy down" the interest rate on a mortgage. The FHA 2-1 buy down allows a purchaser to reduce the initial interest rate on their mortgage by 2% the first year, 1% the next year, and 0% every year thereafter. It is important to note that there is generally a fee in the form of discount points to buy down a mortgage.

This 2-1 buy down should not be confused with a permanent buy down. A permanent buy down is when the borrower pays points to lower the interest rate on the mortgage over the life of the loan. Therefore, if you permanently buy down the note rate from 7% to 6.5% on a 30 year mortgage, your note rate will always be 6.5% for the next 30 years.

With a 2-1 buy down, if you were to "temporarily" lower the rate on a 7% 30 year mortgage, the interest rate the first year would be 5%, the next year would be 6%, and it would return back to 7% the third year and every year thereafter.

Most mortgage professionals generally do not recommend a 2-1 buy down for a mortgage if the borrower is paying for the buy down. This is because the costs that are charged the borrower at closing generally equal the savings in the lower payment. Furthermore, if the seller is paying for the buy down and the buyer will occupy the property for more than 3 years, most mortgage professionals will recommend a permanent buy down so that the borrower can enjoy the savings over a longer period of time.

Temporary Interest Rate Buydowns are permitted only on purchase transactions. Buydowns may only be used on fixed-rate mortgages.

Buydown funds may come from the seller, lender, borrower or other party. Funds from the seller or any other interested third party are considered seller contributions and must be included in the six percent limit on seller contributions.

Lender-funded buydowns on fixed-rate purchase money mortgages through premium pricing are acceptable provided that the funds generated do not result in a reduction of more than 2 percentage points below the note rate.

The lender must establish that the eventual increase in mortgage payments will not affect the borrower adversely and likely lead to default. The underwriter must document that the borrower meets one of the following criteria:

1. The borrower has a potential for increased income that would offset the scheduled payment increases, as indicated by job training or education in the borrower's profession or by a history of advancement in the borrower's career with attendant increases in earnings.
2. The borrower has a demonstrated ability to manage financial obligations in such a way that a greater portion of income may be devoted to housing expenses. This criterion also may include borrowers whose long-term debt, if any, will not extend beyond the term of the buydown agreement.
3. The borrower has substantial assets available to cushion the effect of the increased payments.
4. The cash investment made by the borrower substantially exceeds the minimum required

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What is an FHA Energy Efficient Mortgage?

The FHA energy efficient mortgage program (EEM) is for existing properties. An energy efficient mortgage recognizes the energy savings of a home that has "cost effective" energy saving improvements, which increase the energy efficiency of a home. Because the home is energy efficient, the occupant(s) will save on utility costs and, thus, be able to devote more income to the monthly mortgage payment. Energy efficiency mortgage improvements can include energy saving equipment and active and passive solar technologies.

Under the FHA energy efficient mortgage program, a borrower can finance into the mortgage 100 percent of the cost of eligible energy-efficient improvements, subject to certain dollar limitations, without an appraisal of the energy-efficient improvements. To be eligible for inclusion into the mortgage, the energy-efficient improvements must be "cost effective" (i.e., the total cost of the improvements, including maintenance costs, must be less than the total present value of the energy saved over the useful life of the improvements). The mortgage includes the cost of the energy-efficient improvements, in addition to the usual mortgage amount normally permitted.

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Income Guidelines

In order to qualify for an FHA loan, all income must be analyzed to ensure that it is sufficient to cover the mortgage and other obligation of the borrower. Also, the stability and likelihood of continuance must also be analyzed. Income from any source that cannot be verified, is not stable, or will not continue may not be used in calculating the borrower’s income ratios.

DEBT RATIOS: On April 13, 2005 HUD increased the allowable debt ratio for manually underwritten loans to 31/43. Debt Ratios are the relationship between ones income and ones expenses. Ratios are generally expressed as two numbers like 31 over 43 or 31/43. These are now standard FHA ratios. The first number, the 31, represent the relationship between the borrowers income and his new housing expense of principal, interest, taxes, insurance and homeowner dues. A borrower who makes $3,000 per month and has a housing expense of $930 would have a 31% top end ratio.

The other number of 43% represents the total monthly debt, including the housing expense and all other debt such as credit cards, loans, child support, etc. Thus in our example of the borrower that makes $3,000 per month and had a total expense of $1,290, would have a 41% bottom ratio.

With the use of automated approvals, a borrower’s ratios can exceed the guidelines above. Also, with compensating factors a borrower may be able to exceed the ratio guidelines

STABILITY OF INCOME: HUD does impose an arbitrary minimum length of time a borrower must have held a position to be eligible. However, the lender must verity the borrower's employment for the most recent two full years. If a borrower indicates he or she was in school or in the military during any of this time, the borrower must provide evidence supporting this such as college transcripts or discharge papers. The borrower must also explain any gaps in employment of a month or more.

Allowances for seasonal employment, such as is typical in the building trades, etc., may be made.

The lender or underwriter is looking to show a steady source of constant earnings. Borrowers with frequent job changes generally show a lack of stability. Also, large swings or changes in income will also lead an underwriter to question the stability of the income. A borrower who changes jobs frequently within the same line of work, but continues to advance in income or benefits should be considered favorably.

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SALARIED BORROWERS

SALARY & HOURLY WAGES: Generally in calculating effective income in this scenario, the underwriter will use the base employment of the borrower. The underwriter will also to look at the prior two years w-2 to analyze the stability of the current income. If earning are similar or increasing at a normal rate, they will most likely use the current base income. If income varies drastically they may choose to average the income.

Overtime and bonus income: Both may be used to qualify if the borrower has received such income for approximately the past two years and there are reasonable prospects of its continuance. The lender must develop an average of bonus or overtime income for the past two years and the employment verification must not state categorically that such income is not likely to continue. Once again they are looking for consistent earning. If the bonus or overtime varies that may take the most conservative approach of not count the income at all.

Part-time income: Part-time (second job) income, including employment in seasonal work, may be used in qualifying if the borrower has worked the part-time job uninterrupted for the past two years and will continue to do so. Seasonal employment (e.g., umpiring baseball games in summer, working at a department store during the Christmas shopping season) is considered uninterrupted and may be used in qualifying if the borrower has worked the same type of job for the past two years and expects to be rehired during the next season.

Commission income: Commission income must be averaged over the previous two years. The borrower must provide his or her last two years tax returns along with a recent paystub. (Unreimbursed business expenses must be subtracted from gross income.) Commissions earned less than one year are not considered effective income.

Retirement and Social Security income: Such income requires verification from the source (former employer, Social Security Administration) or through federal tax returns. If any benefits expire within the first full three years, the income source may only be considered as a compensating factor.

Alimony, Child Support or Maintenance Income: Income in this category may be considered as effective if such payments are likely to be consistently received for approximately the first three years of the mortgage. The borrower must provide a copy of the divorce decree, legal separation agreement, or voluntary payment agreement and evidence that payments have been received during the last twelve months. Acceptable evidence of regularity of payments includes cancelled checks, deposit slips, tax returns, court records, etc. Periods less than twelve months may be acceptable provided the payor's ability and willingness to make timely payments is adequately documented by the lender.

Effective April 13, 2005: Treatment of Child Support: Previously HUD did not permit the "grossing up" of child support income in  calculating the qualifying ratios. However, after considerable   review, the Department has decided to permit properly documented child support to be grossed up under the same terms and conditions as other non-taxable income sources.

Government Assistance Programs: Income received under a welfare program, unemployment income, workman's compensation, payments for foster children, etc., is acceptable subject to documentation from the paying agency provided the income is expected to continue at least three years.

Projected Income: Except for those situations described below, projected or hypothetical income is not acceptable for qualifying purposes. Exceptions are permitted for income from cost-of-living adjustments, performance raises, bonuses, etc., verified by the employer and scheduled to begin within 60 days of loan closing.

For those borrowers about to start a new job, if the borrower has a guaranteed, non-revocable contract for the new employment that will begin within 60 days of loan closing, the income is acceptable for qualifying purposes. The lender must also verify the borrower will have sufficient income or cash reserves to support the mortgage payments and any other obligations during the interim between loan closing and the start of employment. (This may be appropriate for situations such as a teacher whose contract begins with the new school year, or a physician beginning residency after the loan is scheduled to close.)

EMPLOYMENT BY FAMILY-OWNED BUSINESSES: Borrowers employed by businesses owned by family members are required to provide additional income documentation. These borrowers must provide the normal verification of employment and pay stubs, and evidence that he or she is not an owner of the business. This may include copies of the borrower's signed personal tax returns or a signed copy of the corporate tax return showing ownership percentages.

Analyzing Income: The underwriter will need to establish that the borrower's earnings trend over the previous two years. Annual earnings that are stable or increasing are acceptable. On the other hand, a borrower whose business shows a significant decline in income over the period analyzed may not be acceptable even if current income and debt ratios meet the guidelines. A very detailed letter of explanation will be required.

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SELF-EMPLOYED BORROWERS

A borrower with a 25 percent or greater ownership interest in a business is considered self-employed for mortgage loan underwriting purposes.

Minimum Length of Self-Employment: Income from self-employment is considered stable and effective if the borrower has been self employed for two or more years. The higher incidences of failure during the first few years of a new business require the following for individuals employed less than two years:

1) Between one and two years. An individual self-employed between one and two years must have at least two years previous successful employment (or a combination of one year of employment and formal education or training) in that or a related occupation to be eligible.

2) Less than one year. The income from borrower’s self-employed less than one year may not be considered as effective income.

Documentation Requirements: The following are required:

1) Signed and dated individual tax returns, plus all applicable schedules, for the most recent two years;

2) Signed copies of federal business income tax returns for the last two years, with all applicable schedules, if the business is a corporation, an "S" corporation, or a partnership;

3) A year to date profit-and-loss (P&L) statement and balance sheet;

4) A business credit report on corporations and "S" corporations.

Analyzing Income: The underwriter will need to establish that the borrower's earnings trend over the previous two years. Annual earnings that are stable or increasing are acceptable. On the other hand, a borrower whose business shows a significant decline in income over the period analyzed may not be acceptable even if current income and debt ratios meet the guidelines. A very detailed letter of explanation will be required.

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FHA VS. CONVENTIONAL

While many people deciding on a loan product rely exclusively on their lenders recommendation, you should understand the basic difference between an FHA loan and a Conventional Loan. The term Conventional Loan includes all loans under the current FNMA and FHLMC lending limits. Some of these may be called Conforming, A paper, subprime, Alt A, A Minus, BC (bad credit) and other industry names.

Most people that have heard of FHA loans tend to associate them with purchase money transactions. While purchases are the most common use, FHA loans are also available for rate and term refinance loans as well as Cash Out refinances.

The main advantage of a fha vs conventional loan is that the credit qualifying criteria for a borrower are not as strict as conventional loan financing and the down payment or Equity requirements are less. In comparing a purchase money FHA loan against a Conforming or A paper loan, the FHA loan will generally have the least amount of money required to close and the lower payment. FHA loans will allow the borrower who has had a few "credit problems" or those without a credit history to buy a home. An FHA Underwriter will require a reasonable explanation of these derogatories, but will approach a person's credit history with common sense credit underwriting. Most notably, borrowers with extenuating circumstances surrounding a bankruptcy that was discharged 2 years ago can be approved for maximum financing. Conventional A Paper financing, on the other hand, would require 4 years to have passed to be eligible for consideration and relies heavily upon credit scoring. If your score is below the minimum standard, you will not qualify or you will be place in a higher rate Subprime, Alt A or A minus loan product.

If a borrower does have past credit issues an FHA loan may be significantly cheaper than an alternative loan such as subprime, ALT A, or A minus. These other programs generally have higher interested rate of require a larger down payment or Equity position. Many of these alternative loan products have Pre Payment penalties where as FHA loan do not have such penalties. In fact FHA loans can be easily refinanced under the Streamline program.

Another advantage of a fha vs conventional loan is that FHA is one of the few home mortgage programs that allow a borrower to have their down payment gifted from a family member, a governmental agency, or a non-profit organization. This allows home buyers without the necessary money to buy a home today.

Even though FHA charges an annual renewal mortgage insurance premium of 0.5% of the loan amount, this fee is generally half that charged by low down payment Conforming A Paper conventional mortgages (which range from 0.55% up to .96% per year). Subprime, Alt A and A minus rates range from 0.55% to 4.18%. For a $100,000 mortgage, FHA would charge approximately $41.67 per month and a typical low down (3%) conventional mortgage with a renewal premium of 0.78% would charge $65.00 per month. That's a $280 savings per year.

However, conventional financing does not require an upfront mortgage insurance premium when a borrower closes on the loan. With FHA financing, that fee for a 30 year loan is 1.50% of the loan amount that the borrower can wrap into the mortgage. On a $100,000 for 30 years at 8%, that's an additional $11.01 that the borrower must pay each month. That's almost an additional $132 the borrower must pay each year (fortunately the interest a borrower pays on his or her mortgage on a primary residence is tax deductible).  

One drawback to FHA loans is that the loan limits set for FHA loans are typically less than the loan limits for conventional financing in most parts of the country. If a borrower is looking for a mortgage that exceeds the FHA loan limits for the area, the borrower would have to put additional money down on the property or finance under a conventional mortgage, Subprime, Alt A or A Minus product.  

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FHA LOAN SIZE LIMITS

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FHA Mortgage Insurance (MMI)

In a similar fashion to conventional home loans, FHA insured mortgages require mortgage insurance. The mortgage insurance, referred to as mutual mortgage insurance (MMI), charges 0.5% per year of the loan amount. In addition to the mutual mortgage insurance that is charged to the home owner each month, FHA charges an upfront mortgage insurance premium (MIP) of 1.50% for 30 year fixed rate mortgages. It is important to note that any unused portion of the upfront MIP may be refunded within the first 84 months of the loan. Please see the MIP refund section for amounts.

Unlike in the past, the monthly mortgage insurance payment will automatically be cancelled when the outstanding principal balance reaches 78% of the original purchase price (provided that the monthly mortgage insurance payments have been made for a minimum of 5 years for 30 year loans). This was a change that occurred for FHA loan that were originated after January 1, 2001. 15 year mortgages where the home buyer makes a down payment greater than 10% of the purchase price will not have to pay the monthly mortgage insurance. Both the 203k loan and the 234 (condominium) loans do not require the upfront MIP but do require the monthly MIP regardless of the down payment.

The following is a table of the upfront MIP and monthly mortgage insurance percentages for FHA home loans under the 203b program:

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FHA Loan Documentation

Generally, you will be asked for documentation to support your income, liabilities, and funds to close. This documentation will establish your credibility as a borrower, your ability to repay the FHA home loans and your willingness to repay the loan.

The following is a list of documents that most likely will be required by the lender to process your FHA mortgage when a

Purchase Money Transaction as required by HUD:

• One full month's worth of paystubs showing Year to Date earnings
• Last 2 years W-2's (salaried income)
• For Self Employed Borrowers; Last 2 years tax returns with all schedules (commission, dividend, rental income)
• Copies of social security, pension, and/or retirement award letters (if applicable)
• Last two months bank statement for all accounts with all pages
• Current statements for all investment accounts with all pages
• Written explanation for any credit derogatories
• Copy of Bankruptcy and discharge paperwork (if applicable)
• Divorce decree and any settlement paperwork (if applicable)
• Copy of your Drivers License and Social Security Cards.
• Name, Address and phone number of your Landlord for the past 12 months.
• Copy of your Sales Contract with Listing and Selling Agent phone Numbers
• Clear Termite Report
• Well and Septic Certifications (if applicable)

For Regular Refinances including Non FHA loans to FHA loans, Cash Out Loans and certain other transactions:

• One full month's worth of paystubs showing Year to Date earnings
• Last 2 years W-2's (salaried income)
• For Self Employed Borrowers; Last 2 years tax returns with all schedules (commission, dividend, rental income)
• Copies of social security, pension, and/or retirement award letters (if applicable)
• Last two months bank statement for all accounts with all pages
• Current statements for all investment accounts with all pages
• Written explanation for any credit derogatories
• Copy of Bankruptcy and discharge paperwork (if applicable)
• Divorce decree and any settlement paperwork (if applicable)
• Copy of your Drivers License and Social Security Cards.
• Copy of you current Mortgage coupons or statements
• Clear Termite Report
• Copy of your Homeowners insurance
• Copy of your Survey (only applies in survey states)

For FHA Streamline Refinances the following documentation may be required:

• One full month's worth of paystubs showing Year to Date earnings
• Last 2 years W-2's (salaried income)
• For Self Employed Borrowers; Last 2 years tax returns with all schedules (commission, dividend, rental income)
• Copies of social security, pension, and/or retirement award letters (if applicable)
• Last two months bank statement for all accounts with all pages
• Current statements for all investment accounts with all pages
• Written explanation for any credit derogatories
• Copy of Bankruptcy and discharge paperwork (if applicable)
• Divorce decree and any settlement paperwork (if applicable)
• Copy of your Drivers License and Social Security Cards.
• Name, Address and phone number of your Landlord for the past 12 months.
• Copy of your Sales Contract with Listing and Selling Agent phone Numbers
• Clear Termite Report
• Well and Septic Certifications (if applicable)

For Regular Refinances including Non FHA loans to FHA loans, Cash Out Loans and certain other transactions:

• One full month's worth of paystubs showing Year to Date earnings
• Last 2 years W-2's (salaried income)
• For Self Employed Borrowers; Last 2 years tax returns with all schedules (commission, dividend, rental income)
• Copies of social security, pension, and/or retirement award letters (if applicable)
• Last two months bank statement for all accounts with all pages
• Current statements for all investment accounts with all pages
• Written explanation for any credit derogatories
• Copy of Bankruptcy and discharge paperwork (if applicable)
• Divorce decree and any settlement paperwork (if applicable)
• Copy of your Drivers License and Social Security Cards.
• Copy of you current Mortgage coupons or statements
• Clear Termite Report
• Copy of your Homeowners insurance
• Copy of your Survey (only applies in survey states)

For FHA Streamline Refinances the following documentation may be required:

• Copy of your current Note
• Copy of the First Two pages of your mortgage or Deed of Trust
• Copy of your Drivers License and Social Security Card
• Copy of your Homeowners insurance
• Copy of your Survey (only applies in survey states)
• Copy of you current Mortgage coupons or statements

Once receiving your documentation most lenders will handle acquiring other documentation such as title reports, credit reports and appraisals if required. It is not uncommon for the lender to have the borrower pay for the cost of the credit report and appraisal.

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FHA Closing Cost

When purchasing a home, you will generally have some closing cost in addition to any down payment. FHA closing costs that may be charged to the buyer are considered "allowable" FHA closing cost per HUD. These are buyer costs that are reasonable and customary as determined by the local FHA office. All other closing costs are considered non-allowable are generally paid by the seller when purchasing a home or the lender when refinancing your current FHA mortgage. The following tables gives a break down of the FHA closing costs and how they are treated. This list is not inclusive of all fees that you may pay. You should consult your lender and request a copy of the Good Faith Estimate for charges on your transaction. One thing to keep in mind is that if the seller of a property will not pay for the non-allowable FHA closing cost and the Lender has to cover some of these costs, it will generally mean a slightly higher rate or points charges to the buyer.

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Purchase vs. Refinance

Many people make the mistake that a FHA loan are solely for first time buyers to purchase a home. While this might be one of the more popular transactions, FHA loans are available to anyone for both purchases or refinance transactions. FHA does not have any income restrictions or location restrictions. The do however have maximum mortgage limits that vary by state and county.

There are certain programs that are sponsored by city, county and state government programs that piggyback on top of FHA loan programs that offer below market or subsidized payments that have income or location restrictions.

FHA loan financing is available up to 97.75% of the purchase price for one to four family owner occupied properties.

Borrowers who currently have a FHA loan may choose to refinance using the FHA Streamline Refinance program.

Borrowers who have other types of loans may refinance up to 97% of the appraised value if they are only paying off their existing mortgage or up to 85% of the appraised value if they are paying off debt or taking cash out of the transaction.

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FHA Streamline Refinance Loans

FHA streamlines emerged onto the mortgage scene in the early 1980's. Since then, thousands of FHA home owners have utilized this program to lower their interest rate with fewer costs and relative ease.

A streamline refinance refers only to the amount of documentation and underwriting that is conducted on a loan file by the mortgage company. Mortgage companies may offer streamlines "no cost" (actually no out-of-pocket expenses to the borrower) by charging a higher interest rate on the new loan. Other companies may offer a streamline refinance that wrap the costs into the new mortgage amount. Unfortunately, there must be sufficient equity in the property. Before deciding which option best fits your needs, it is important to weigh not only the costs but also the long term impact that a higher rate or a higher mortgage payment will have.

Streamline refinance loans with or without and appraisal, do not require credit underwriting. While HUD does not disqualify a borrower for prior late mortgage payments, individual lender may have restrictions. New individuals may be added to title on a streamline refinance without credit review. Deleting individuals from title on a streamline refinance may require qualification (certain exceptions may apply).

The following are basic requirements of an FHA streamline refinance:

• The mortgage to be refinanced must already be FHA insured
• The mortgage to be refinanced should be current (not delinquent)
• The refinance must lower the principal and interest payment of the previous mortgage payment
• The borrower may not receive cash from loan proceeds
• Any subordinate financing may remain in place as long as it is subordinated on title.
• The term of the new mortgage must be the lesser of 30 years or the unexpired term of the mortgage plus 12 years. A borrower cannot refinance from a 15 year loan to a 30 year loan.
• An appraisal is not required unless the closing costs are wrapped into the loan. Streamline refinances without an appraisal are limited to the unpaid principal balance, minus any refund credit of the mortgage insurance premium (MIP), plus the new upfront MIP if it is to be financed in the mortgage.
• No termite report is required
• The borrower cannot be late, delinquent, or in default of any federal debt.

Apply for your Streamline Refinance Now!

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FHA Cash Out Refinances

Cash-out refinances on properties owned more than one year prior to the refinance are permitted on owner occupied principal residences only, and are limited to 85% of the appraised value plus the allowable closing costs.

A cash-out refinance is when a borrower refinances their current mortgage for more than they owe in order to pull out the built up equity that has accrued in the home. The amount a home owner can borrower is limited by the value of the property compared to the loan amount (otherwise known as the loan-to-value or LTV).

The following are basic requirements of a cash-out FHA refinance:

• If the property was purchased less than one year preceding the refinance, the borrower is allowed to refinance up to 85% of the original sales price plus the allowable new closing costs or the appraised value plus the allowable closing costs (whichever is lesser)
• If the property was purchased more than one year preceding the refinance, the borrower can cash-out 85% of the appraised value plus the allowable closing costs
• Applies to owner occupied properties only
• 2nd mortgages may be paid off with the cash-out refinance (the second mortgage must be at least 12 months old)
• Loan amounts may not exceed the maximum loan limits for the area
• If the new loan is to refinance an existing mortgage to buy out an ex-spouse's equity, a divorce decree or settlement agreement must be provided to document the equity awarded to the ex-spouse
• All borrowers must credit qualify
• Borrowers may be eligible for a refund of any unused portion of the mortgage insurance premium (MIP) and the new mortgage may require a new upfront MIP.

Apply for your Cash Out Refinance Now!

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203K Loan - Rehab Program Overview

The Federal Housing Administration (FHA), which is part of the Department of Housing and Urban Development (HUD), administers various single family mortgage insurance programs. These programs operate through FHA-approved lending institutions which submit applications to have the property appraised and have the buyer's credit approved. These lenders fund the mortgage loans which the Department insures. HUD does not make direct loans to help people buy homes.

The FHA 203k loan program is the Department's primary program for the rehabilitation and repair of single family properties. Basically a home improvement loan. As such, it is an important tool for community and neighborhood revitalization and for expanding homeownership opportunities. Since these are the primary goals of HUD, the Department believes that FHA 203k loan is an important program and they intend to continue to strongly support the program and the lenders that participate in it.

Lenders have successfully used the FHA 203k loan program in partnership with state and local housing agencies and nonprofit organizations to rehabilitate properties. These lenders, along with state and local government agencies, have found ways to combine the FHA 203k loan with other financial resources, such as HUD's HOME, HOPE, and Community Development Block Grant Programs, to assist borrowers. Several state housing finance agencies have designed programs, specifically for use with FHA 203k loan and some lenders have also used the expertise of local housing agencies and nonprofit organizations to help manage the rehabilitation processing.

HUD also believes that the FHA 203k loan program is an excellent means for lenders to demonstrate their commitment to lending in lower income communities and to help meet their responsibilities under the Community Reinvestment Act (CRA). HUD is committed to increasing homeownership opportunities for families in these communities and Section 203(k) is an excellent product for use with CRA-type lending programs.

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FHA 203K Loan - How the Program Can Be Used:

This program can be used to accomplish rehabilitation and/or improvement of an existing one-to-four unit dwelling in one of three ways:

• To purchase a dwelling and the land on which the dwelling is located and rehabilitate it.
• To purchase a dwelling on another site, move it onto a new foundation on the mortgaged property and rehabilitate it.
• To refinance existing indebtedness and rehabilitate a dwelling;

To purchase a dwelling and the land on which the dwelling is located and rehabilitate it, and to refinance existing indebtedness and rehabilitate such a dwelling, the mortgage must be a first lien on the property and the loan proceeds (other than rehabilitation funds) must be available before the rehabilitation begins.

To purchase a dwelling on another site, move it onto a new foundation and rehabilitate it, the mortgage must be a first lien on the property; however, loan proceeds for the moving of the house cannot be made available until the unit is attached to the new foundation.

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FHA 203K Loan - Eligible Property:

To be eligible, the property must be a one- to four-family dwelling that has been completed for at least one year. The number of units on the site must be acceptable according to local zoning requirements. All newly constructed units must be attached to the existing dwelling. Cooperative units are not eligible.

Homes that have been demolished, or will be razed as part of the rehabilitation work, are eligible provided some of the existing foundation system remains in place.

In addition to typical home improvement loan projects, this program can be used to convert a one-family dwelling to a two-, three-, or four-family dwelling. An existing multi-unit dwelling could be decreased to a one- to four-family unit.

An existing house (or modular unit) on another site can be moved onto the mortgaged property; however, release of loan proceeds for the existing structure on the non-mortgaged property is not allowed until the new foundation has been properly inspected and the dwelling has been properly placed and secured to the new foundation.

A 203(k) mortgage may be originated on a "mixed use" residential property provided: (1) The property has no greater than 25 percent (for a one story building); 33 percent (for a three story building); and 49 percent (for a two story building) of its floor area used for commercial (storefront) purposes; (2) the commercial use will not affect the health and safety of the occupants of the residential property; and (3) the rehabilitation funds will only be used for the residential functions of the dwelling and areas used to access the residential part of the property.

What is the minimum amount of repairs required on a FHA 203k home improvement loan?

There is a minimum $5,000 requirement of eligible home improvement loan projects on the existing structure of the property. Minor or cosmetic repairs may be included after meeting the first $5,000 worth of repairs.

What are some of the repairs that qualify for the first $5,000?

Structural alterations and reconstruction: (Repair or replacement of structural damage, chimney repair, additions to the structure, installation of additional bath(s), skylights, finished attics and/or basements, repair of termite damage and the treatment against termites)

• Elimination of health and safety hazards.
• Changes for aesthetic appeal: (New siding, adding a dormer, covered porch, attached garage).
• Air Conditioning or replacement: (plumbing, heating, air conditioning and electrical systems).
• Installation of well, septic system or connection to public utilities.
• Roofing, Gutter Downspouts, Flooring, Tiling and carpeting.
• Major landscape and site improvement.
• Improvements to improve accessibility and functions for the disabled.

What are the qualifications to be able to obtain a FHA 203-k loan?

The qualifications requirements are the same as a typical FHA loan. The only additional item that the borrower needs is either enough cash reserved to pay for materials and labor until they are reimbursed through a draw, or a credit card with an adequate available balance. If there is to be a contractor involved, the contractor may choose to cover these costs.

The interest rate on a typical FHA 203k loan is a little higher than a standard FHA or conventional 30/15-year fixed-rate loan. The cash requirements are the same as an FHA loan, 3 percent to 5 percent, which is less than a typical conventional loan. There are a couple of additional fees which pertain to the construction aspects of the FHA 203k loan.

Can I pick my own contractor to do the work?

You may decide on your own contractor, and they should be brought into the process in the beginning stage of the loan process. Check out the credentials of the contractor thoroughly, making sure he is knowledgeable in all aspects of rehabilitation work.

The home improvements or repairs need not be made before moving into the property, depending on how extensive the repairs are and whether the house is habitable while the repairs are being made. The home improvement loan provides the ability to include up to 6 months of mortgage payments in the improvement escrow, should you not be able to occupy the property and have to pay rent during rehabilitation.

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FHA 203-k loan - Questions & Answers

1) Is the FHA 203k loan program restricted to single-family dwellings?
No. The program can be used for one-to-four unit dwellings. Maximum mortgage limitations are the same as for properties under Section 203(b).

2) Can the FHA 203k loan be used to improve a condominium unit?
Yes, however, condominium rehabilitation is subject to the following conditions:

a) Owner/occupant and qualified non-profit borrowers only;

b) Rehabilitation is limited only to the interior of the unit. Mortgage proceeds are not to be used for the rehabilitation of exteriors or other areas which are the responsibility of the condominium association, except for the installation of firewalls in the attic for the unit;

c) Only the lesser of five units per condominium association, or 25 percent of the total number of units, can be undergoing rehabilitation at any one time;

d) The maximum mortgage amount cannot exceed 100 percent of after-improved value. After rehabilitation is complete, the individual buildings within the condominium must not contain more than four units. By law, 203k loans can only be used to rehabilitate units in one-to-four unit structures. However, this does not mean that the condominium project, as a whole, can only have four units or that all individual structures must be detached. Example: A project might consist of six buildings each containing four units, for a total of 24 units in the project and, thus, be eligible for an FHA 203k loan. Likewise, a project could contain a row of more than four attached townhouses and be eligible for a FHA 203k loan because HUD considers each townhouse as one structure, provided each unit is separated by a 1 1/2 hour firewall (from foundation up to the roof). Similar to a project with a condominium unit with a mortgage insured under Section 234(c) of the National Housing Act, the condominium project must be approved by HUD prior to the closing of any individual mortgages on the condominium units.

3) Can a FHA 203k loan be used to convert a one family dwelling to a two-, three-, or four-family dwelling (or vice versa)?
Yes.

4) Can a FHA 203k loan be used to move an existing house onto another site?
Yes, however, release of loan proceeds for the existing structure on the non-mortgaged property is not allowed until the new foundation has been properly inspected and the dwelling has been properly placed and secured to the new foundation. At closing, funds would be released to purchase the site and the rest of the mortgage proceeds would be placed in the Rehabilitation Escrow Account. The borrower would have the site prepared to accept the dwelling. The first release would be based on the improvements made to the site, including the installation of the existing structure on the new foundation.

5) What eligible home improvements are acceptable under the $5,000 minimum requirement?

a) Structural alterations and reconstruction (e.g., repair or replacement of structural damage, chimney repair, additions to the structure, installation of an additional bath(s), skylights, finished attics and/or basements, repair of termite damage and the treatment against termites or other insect infestation, etc.).

b) Changes for improved functions and modernization (e.g., remodeled bathrooms and kitchens, including permanently installed appliances, i.e., built-in range and/or oven, range hood, microwave, dishwasher).

c) Elimination of health and safety hazards (including the resolution of defective paint surfaces or lead-based paint problems on homes built prior to 1978).

d) Changes for aesthetic appeal and elimination of obsolescence (e.g., new exterior siding, adding a second story to the home, covered porch, stair railings, attached carport).

e) Reconditioning or replacement of plumbing (including connecting to public water and/or sewer system), heating, air conditioning and electrical systems. Installation of new plumbing fixtures is acceptable, including interior whirlpool bathtubs.

f) Installation of well and/or septic system. The well or septic system must be installed or repaired prior to beginning any other repairs to the property. A property less than 1/2 acre with a separate well or septic system is not acceptable; also, a property less than 1 acre with both a well and a septic system is unacceptable. Lots smaller than these sizes, usually have problems in the future; however, the local HUD Field Office can approve smaller lot size requirements where the local health authority can justify smaller lots. The installation of a new well or the repair of an existing well (used for the primary water source to the property) can be allowed provided there is adequate documentation to show there is reason to believe the well will produce a sufficient amount of potable water for the occupants. (A well log of surrounding properties from the local health authority is acceptable documentation.)

g) Roofing, gutters and downspouts.

h) Flooring, tiling and carpeting.

i) Energy conservation improvements (e.g., new double pane windows, steel insulated exterior doors, insulation, solar domestic hot water systems, caulking and weather stripping, etc.).

k) Major landscape work and site improvement (e.g., patios, decks and terraces that improve the value of the property equal to the dollar amount spent on the improvements or required to preserve the property from erosion). The correction of grading and drainage problems is also acceptable. Tree removal is acceptable if the tree is a safety hazard to the property. Repair of existing walks and driveway is acceptable if it may affect the safety of the property. (Fencing, new walks and driveways, and general landscape work (i.e., trees, shrubs, seeding or sodding) cannot be in the first $5000 requirement.)

l) Improvements for accessibility to a disabled person (e.g., remodeling kitchens and baths for wheelchair access, lowering kitchen cabinets, installing wider doors and exterior ramps, etc.). Related fixtures such as new cooking ranges, refrigerators, and other appurtenances, as well as general painting are also eligible; however, it must be in addition to the $5,000 requirement.

6) Can a detached garage or another dwelling be placed on the mortgaged property?
Yes, however, a new unit must be attached to the existing dwelling, and must comply with HUD's Minimum Property Standards in 24 CFR 200.926d and all local codes and ordinances.

7) Is there a time period on the rehabilitation construction period?
Yes, the Rehabilitation Loan Agreement contains three provisions concerning the timeliness of the work. The work must begin within 30 days of execution of the Agreement. The work must not cease prior to completion for more than 30 consecutive days. The work is to be completed within the time period shown in the Agreement (not to exceed six months); the lender should not allow a time period longer than that required to complete the work.

8) What happens if the borrower fails to perform under the terms of the Agreement?
The lender may refuse to make further releases from the Rehabilitation Escrow Account. The funds remaining in the Account can be applied to reduce the mortgage principal. Also, the lender has the option to call the mortgage loan due and payable.

9) Does the rehabilitation construction have to comply with HUD's Minimum Property Standards?
Yes. The improvements must comply with HUD's Minimum Property Standards and all local codes and ordinances.

10) Does HUD always require a contingency reserve to cover unexpected cost increases?
Typically, yes. On properties older than 30 years and over $7,500 in rehabilitation costs, the cost estimate must include a contingency reserve. The reserve must be a minimum of ten (10) percent of the cost of rehabilitation; however, the contingency reserve may not exceed twenty (20) percent where major remodeling is contemplated. If utilities were not turned on for inspection, a minimum fifteen (15) percent is required.

11) How many draw releases can be scheduled during the rehabilitation period?
As many as five releases (four plus a final) can be scheduled. The number of releases is normally dictated by the cash-flow requirements of the contractor. An inspection is always required with a scheduled release; however, inspections may be scheduled more often than releases if necessary to ensure compliance with the architectural exhibits, HUD's Minimum Property Standards and all local codes and ordinances. If the cost of rehabilitation exceeds $10,000, then additional draw inspections may be authorized under certain circumstances.

12) Can the architectural exhibits, including the cost estimate, be modified after the mortgage loan is closed?
Yes. The changes must be approved by HUD or a DE lender prior to beginning the work. If the change affects the health, safety or necessity of the dwelling, the contingency reserve can be used to pay for the change. However, if the health, safety or necessity of the dwelling is not affected and an increase in cost occurs, the borrower must apply monies into the contingency reserve fund to pay for the change. Should the change result in a reduced cost of rehabilitation, the difference will be placed in the contingency reserve fund; if unused, it will be applied as a mortgage prepayment after completion of construction.

13) What happens if the cost of the rehabilitation increases during the rehabilitation period?
Can the 203(k) mortgage amount be increased to cover the additional expenses? No. This emphasizes the importance of carefully selecting a contractor who will accurately estimate the cost of the improvements and satisfactorily complete the rehabilitation at or below the estimate.

14) How long will it take after the sales contract is signed to go to closing?
If the cost estimates are completed within two weeks of signing the sales contract, the loan should close within 60 to 90 days, assuming there are no title problems and, of course, your borrower is qualified.

15) Can a FHA 203k loan be an Adjustable Rate Mortgage?
Yes. An Adjustable Rate Mortgage is available to an owner-occupant only. Investors and non-profits are not eligible for an ARM.

16) Can an investor use the FHA 203k loan program?
No. In October, 1996, the Department placed a moratorium on investor participation in the FHA 203k loan Rehabilitation Mortgage Program.

17) Can a local government agency or a nonprofit organization use the FHA 203k loan program?
Yes. The same qualification requirements will be used as for an owner-occupant of the property

18) Can mortgage payments (PITI) be included in the mortgage?
Yes. Up to six months of payments may be included in the mortgage if the property is not occupied during the rehabilitation period.

19) Can a six (or more) unit building be done using the FHA 203k loan program?
No. However, the building could be renovated and reduced to a four unit building.

20) Can a dwelling be converted to provide access for a disabled person?
Yes. A dwelling can be remodeled to improve the kitchen and bath to accommodate a wheelchair access. Wider doors and handicap ramps can also be included in the cost of rehabilitation.

21) Is a contractor required to do the work?
No. However, if the borrower wants to do any work or be the general contractor, they must be qualified to do the work, and do it in a timely and workmanlike manner. It is very important that the work be done in a time frame that will assure the completion of the work that will be agreed upon in the Rehabilitation Loan Agreement (signed at closing). A borrower doing their own work can only be paid for the cost of the materials. Monies saved can be allocated to cost overruns or additional improvements.

22) If the borrower does the work, how is the cost for work estimated?
The cost estimate must be the same as if a contractor is doing the work, in case the borrower cannot (for some reason) complete the work.

23) Can cost savings on the rehabilitation be given back to the borrower?
No. However, the savings can be transferred to cost overruns in other work items or can be used to make additional improvements to the property If the cost savings are not used, the money must be applied to the mortgage principal, but the mortgage payments will remain the same, because the loan has already closed. To use the cost savings, it will be necessary for a Change Order to be completed and approved by the lender.

24) Can any rehabilitation money be paid upfront to offset the startup costs for the contractor?
No. However, an exception can be allowed for kitchen and bath cabinetry, or floor covering, where a contract is established with the supplier and an order is placed with the manufacturer for delivery at a later date.

25) Is there anyone available who can prepare the Work Write-up and cost estimates?
Yes. HUD allows fee inspectors to be an independent consultant with the borrower. This is a time saver, because it can be completed in about two weeks. After this step is completed, closing should occur within 60 to 90 days.

26) Can the borrower do their own work write up and cost estimate?
Yes. However, it will take them between three to six months to complete. This slows down the process and will save only about $200, but waste a lot of valuable time. Hiring an independent consultant will help the closing occur within 60 to 90 days from completion of the Work Write-up.

27) What is the definition of a First-Time Homebuyer?
A single person or an individual and his or her spouse who have not owned a home (as a tenant in common or as a joint tenant by the entirety) during the three years immediately preceding the date of application for the FHA 203k loan. Any individual who is legally separated or divorced cannot be excluded from consideration, because the three-year waiting period does not apply, provided the individual no longer has an interest in the home.

28) Is there a limitation on how many properties a person or organization can have in any area of the community?
Yes. A borrower can have not more than seven (7) units within a two block radius of the property they want to purchase. However, if the property is in a local community area that has been designated for redevelopment or revitalization, then this seven unit limitation does not apply.

29) Can nonresidential (storefront) property be eligible for a 203k insured loan?
Yes. Mixed-use residential property is acceptable provided the property has no greater than 25% (for a one story building); 33% (for a three story building); and 49% (for a two story building) of its floor area used for commercial (storefront) purposes. The rehab funds can only be used for the residential functions of the dwelling and areas used to access the residential part of the property.

30) Is only one appraisal required to establish the "after-rehab" value of the property?
Basically, yes, provided the lender can be assured that the contract sales price is reasonable or the existing debt on the property is low enough to assure a good equity position by the homeowner. On a HUD-owned property, the lender can use HUD's appraisal for the after-rehab value.

31) Can HUD-owned properties be purchased using the FHA 203k loan?
Yes. However, the property must be advertised that it is eligible for financing with a 203k loan. If the HUD-owned property is purchased with other funds, a 203k loan can be made after the property is in the buyers name. In this case, cash back will be allowed to the borrower for a period of six months from purchasing the HUD-owned property

32) Is the borrower required to enter into a contractual agreement with the general contractor who will do the work on the property?
No. However, it is strongly suggested that the lender protect their interests to assure no liens are placed on the property

33) Can an Energy Efficient Mortgage (EEM) be allowed using the FHA 203k program?
Yes. A borrower can finance into the mortgage 100 percent of the cost of eligible energy efficient improvements, subject to certain dollar limitations, without an appraisal of the energy improvements and without further credit qualification of the borrower

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What is an FHA Hybrid Adjustable Rate Loan?

Adjustable Rate Loans are loans in which the interest rate will possibly change at some future date.

The FHA hybrid adjustable rate mortgage loan is one of the best adjustable rate mortgages currently available. It is available 1-4 unit owner-occupied principal residences (ie. townhomes, and PUDs.) and for loans to be insured under sections 203(b)(single-family mortgage insurance), 203(h)(disaster victims), 203(k)(rehabilitation loans), and 234(c)(mortgage insurance on condominium units).

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Highlights of the New Program

In addition to 1-year ARMs, under this rule change, FHA may insure ARMs on single-family properties that have interest rates that are fixed for the first three years, five years, seven years or ten years of the mortgage term and adjusted annually thereafter. The 1-, 3-year and 5-year ARMs allow a one percentage point annual interest rate adjustment after the initial fixed interest rate period and a five percentage point interest rate cap over the life of the loan. The 7-year and 10-year ARMs allow a two percentage point annual interest rate adjustment after the initial fixed interest rate period and a six percentage point interest rate cap over the life of the loan.

For loans that are originated after April 28, 2005 HUD will insure a new 5 Year Hybrid ARM product. The new product will have CAPS of 2/6 which means that after the initial 5 year period it can change a maximum of 2% per year or 6% over the life of the loan. This program will also probably allow a 6% maximum change after the initial 5 year fixed terms. This loan is more standard to conventional loans and may result in better pricing for the consumer as it is better received in the secondary markets.

Borrowers choosing the 1-year ARM must qualify for payments based on the contract or initial rate plus one percentage point (1%). This only applies to the 1-year ARM where the loan to value (LTV) is 95.00 percent or greater. Borrowers choosing the 3-, 5-, 7- or 10-year ARMs are to be qualified at the entry level (note) rate (i.e., there is no requirement to underwrite at one percentage point above the note rate as there is for 1-year ARMs).

FHA's adjustable rate mortgage is based on the economic indicator index called the 1-Yr. T-Bill. You can find the current T-Bill rate on many websites like HSH Associates or in the Wall Street Journal.  Apply for your FHA Hybrid Arm today.

Index + Margin = Fully Indexed Rate
(current 1 Yr. T-Bill Rate) + (percentage, usually 2.75%) = Interest Rate

Example:

Index = 1.3%(as of Oct 2003) + Margin of 2.75% = Fully Indexed Rate = 4.05%
Other benefits of the FHA adjustable rate mortgage is that you can "streamline refinance" to a FHA fixed rate mortgage at anytime.

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FHA Kiddie Condo's

A great way for young adults to get started buying their first home is by using the FHA "Kiddie" Condo Loan Program. This type of mortgage allows a person to co-borrow with a blood relative (eg. parent, grandparent, sibling, etc.) who helps qualify for the loan using their income or assets. Both borrowers take title to the property and sign for the loan.

There are three big advantages to using this type of loan.

1. A low down payment (as little as 3% of the purchase price).
2. A lower, owner-occupied interest rate on the mortgage Vs the higher investment property interest rate.
3. Helps the new borrower establish a solid credit rating.

With a Kiddie Condo loan program, at least one borrower must occupy the property as his/her primary residence, but extra bedrooms could be rented out to help cover the cost of the mortgage payments. This is a perfect way for a college student, recent graduate, or anyone unable to obtain a loan on his/her own to buy a condo or townhome or single family home with the help of a family member. Apply for your Kiddie Condo loan today.

The tax benefits, such as deducting mortgage interest and real estate taxes on a Federal Income Tax return, can be divided among the owners, according to who pays the expense. See your tax advisor for details.

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Officer Next Door

The U. S. Department of Housing and Urban Development (HUD) wants to make American communities stronger and to build a safer nation. Public safety improves when police officers live in a neighborhood. The Officer Next Door (OND) program helps make this goal a reality by making homeownership faster and more affordable for Law Enforcement Officers.*

Who Can Participate?

You must be a full-time, sworn law enforcement officer who is "employed full-time by a Federal, state, county or municipal government; or a public or private college or university." You must be "sworn to uphold, and make arrests for violations of, Federal, state, county, or municipal law." Your employer must certify that you are a full-time police officer with the general power of arrest. You don't have to be a first-time homebuyer to participate. However, you cannot own any other home at the time you close on your OND home. You must agree to live in the HUD home as your only residence for 3-years after you move into it.

What Are the Benefits for the Officer?

The selected bidder may purchase the property at a 50 percent discount from the list price. For example, if a HUD home is listed for $100,000, an officer can buy it for $50,000. To make a HUD home even more affordable, you may apply for an FHA-insured mortgage with a downpayment of only $100 and you may finance all closing costs.

Qualifying homes are restricted to specifically designated single family homes, townhomes and condominiums that are located within the revitalization areas. Other types of properties, such as a duplex or triplex, do not qualify for this program. In addition, the homes must be HUD acquired homes and cannot be other real estate for sale in the area (i.e. VA foreclosure homes, resale homes or new construction). HUD sells all qualifying homes as-is. In other words, HUD does not provide any guarantees or warranties. 

If the home you want to purchase needs repairs, you may use FHA's 203(k) mortgage program. This program allows you to finance both the purchase of the home and the cost of needed repairs. You have the benefit of one loan for both costs and one monthly payment.

Because homes sold through the OND program are located in Revitalization Areas there may be additional assistance from state or local government sources. Local or state governments want to encourage families and businesses to move into

How do I participate?

Officer Next Door property is listed and sold exclusively over the internet. Properties are single-family homes located in Revitalization Areas. Properties available through the program are marked with a special Office Next Door button. Bids are awarded once each week. Your bid must be the amount of the list price. You may submit your bid directly or utilize the services of a real estate broker. Winning bids are randomly selected by computer. The winning bid is posted each week on the web site where you made your bid.

In all cases, HUD requires that you sign a second mortgage and note for the discount amount. No interest or payments are required on this "silent second" provided that you fulfill the three-year occupancy requirement.

What happens if I can’t fulfill my obligation or I am no longer an Officer?

Depending upon the circumstances, failure to fulfill the three year residency requirement may have serious consequences. HUD may restrict the home owner from selling the property for no more than 110% of the original sales price. In addition, HUD may require all or part of the discounted amount to be repaid. Generally the pro-rated repayment amount goes as follows: repayment of 90% of the discounted amount during the first year, repayment of 60% of the discounted amount during the second year, and repayment of 30% of the discounted amount during the third year. Should fraud or other serious charges suspected, HUD may file criminal charges against the Officer, ban the Officer from further participation from any HUD, FHA, and other Federal programs, and may face the possibility of serious fines and potential prison time. HUD will conduct "spot checks" during the first three years to insure that the residency requirement is being fulfilled.

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Teacher Next Door

The Teacher Next Door program was established by the Department of Housing and Urban Development (HUD) to offer single-family houses, townhouses and condominiums for sale to teachers at a 50 percent discount. The goal is to encourage teachers to buy homes in low and moderate-income neighborhoods.

Who can participate?

The Teacher Next Door program is open to any person "employed full-time by a public school, private school, or federal, state, county, or municipal educational agency as a state-certified classroom teacher or administrator in grades K-12." Participants must certify that they are employed by an educational agency that serves the school district/jurisdiction in which the home they are purchasing is located.

Teachers wishing to purchase a home under the Teacher Next Door program must be in good standing with their employer. Your employer must certify that you are a full-time teacher or school administrator. You don't have to be a first-time homebuyer to participate. However, you cannot own any other home at the time you close on your Teacher Next Door home. You must agree to live in the HUD home as your only residence for 3-years after you move into it.

What Are the Benefits for the Teacher?

The selected bidder may purchase the property at a 50 percent discount from the list price. For example, if a HUD home is listed for $100,000, an officer can buy it for $50,000. To make a HUD home even more affordable, you may apply for an FHA-insured mortgage with a downpayment of only $100 and you may finance all closing costs.

Qualifying homes are restricted to specifically designated single family homes, townhomes and condominiums that are located within the revitalization areas. Other types of properties, such as a duplex or triplex, do not qualify for this program. In addition, the homes must be HUD acquired homes and cannot be other real estate for sale in the area (i.e. VA foreclosure homes, resale homes or new construction). HUD sells all qualifying homes as-is. In other words, HUD does not provide any guarantees or warranties. 

If the home you want to purchase needs repairs, you may use FHA's 203(k) mortgage program. This program allows you to finance both the purchase of the home and the cost of needed repairs. You have the benefit of one loan for both costs and one monthly payment.

Because homes sold through the Teach Next Door program are located in Revitalization Areas there may be additional assistance from state or local government sources. Local or state governments want to encourage families and businesses to move into

How do I participate?

Teacher Next Door property is listed and sold exclusively over the internet. Properties are single-family homes located in Revitalization Areas. Properties available through the program are marked with a special Teacher Next Door button. Bids are awarded once each week. Your bid must be the amount of the list price. You may submit your bid directly or utilize the services of a real estate broker. Winning bids are randomly selected by computer. The winning bid is posted each week on the web site where you made your bid.

In all cases, HUD requires that you sign a second mortgage and note for the discount amount. No interest or payments are required on this "silent second" provided that you fulfill the three-year occupancy requirement.

What happens if I can’t fulfill my obligation or I am no longer a Teacher?

Depending upon the circumstances, failure to fulfill the three year residency requirement may have serious consequences. HUD may restrict the home owner from selling the property for no more than 110% of the original sales price. In addition, HUD may require all or part of the discounted amount to be repaid. Generally the pro-rated repayment amount goes as follows: repayment of 90% of the discounted amount during the first year, repayment of 60% of the discounted amount during the second year, and repayment of 30% of the discounted amount during the third year. Should fraud or other serious charges suspected, HUD may file criminal charges against the Officer, ban the Officer from further participation from any HUD, FHA, and other Federal programs, and may face the possibility of serious fines and potential prison time. HUD will conduct "spot checks" during the first three years to insure that the residency requirement is being fulfilled.

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FHA Refunds of MIP

Does HUD owe you a refund?

If you have paid off a FHA loan through the sale of the property or are refinancing from an FHA loan to a non FHA loan, you may be eligible for a fha mortgage insurance premium (MIP) refund if you originated your loan afterSeptember 1, 1983, but before December 8, 2004, paid an upfront mortgage insurance premium at closing, and did not default on your mortgage payments.

There are several exception however, that may apply to your situation. FHA borrower's that fit into any one of the following situations may not be eligible for a fha refund:

• FHA to FHA refinances: When an FHA loan is refinanced, the refund from the old premium may be applied toward the upfront premium required for the new loan. After December 8th, the refund schedule has been reduced to 3 years and only if refinancing from one FHA loan to another.
• Assumptions: When an FHA insured loan is assumed, the insurance remains in force (i.e. the seller receives no refund). The new owner of the property may be eligible for a refund when the loan is paid in full.
• Claims: When a mortgage company submits a claim to HUD for insurance benefits, no refund is due the homeowner.

If you do not receive a check or an application for refund from HUD within 45 days after you have paid off your loan, check with your mortgage company to confirm that they have sent HUD a Request for Termination. If they confirm that the correct termination information was sent, contact HUD. If you do not receive a refund or any other documentation from HUD within 60 days from the date you mailed your claim form, contact HUD immediately.

Former FHA borrowers who think they might be due a refund can call a toll free number, 1-800-697-6967, or write HUD at P.O. Box 23669, Washington DC 20026-3699. Or you can look for your name with the HUD Refund Search Form

To calculate your estimated MIP refund, multiply your original upfront mortgage insurance premium with the factor listed in the table below. You may find this number on your final settlement papers. The form is known as a HUD-1. It should be listed on line # 902.

For Mortgages closed on or after December 8,2004.

You will not receive any refund unless your are refinancing to another FHA loan. Your refund will then be applied towards you new mortgage insurance premium base on the schedule below.

For mortgages closed on or after January 1, 2001:

For mortgages closed after September 1, 1983 and before January 1, 2001: