Federal Housing Administration (FHA)
By Martin Lukac
FHA loan programs:
FHA Access
FHA Cal Gold
FHA Rural Gold
FHA Mutal Mtg. Insurance
FHA 203 (k)
FHA 203 b
FHA 251
FHA Title I program
FHA MIP Refund
The Federal housing administration was created by Congress in 1934 as part of
the national housing act. The purpose of the act, and of the FHA, was to
generate new jobs through increased construction activity, to exert a
stabilizing influence on the mortgage market, and to promote the financing,
prepared, and sale of real estate
nationwide. Today, the FHA is part of the Department of Housing and Urban
Development (HUD).
The FHA's primary function is to insure loans. FHA approved lenders are
insured against losses caused by borrower default.
The FHA insurance program is called mutual mortgage insurance plan (MMI).
Under the plan, lenders who had been approved by the FHA to make insured loans
either submit applications from prospective borrowers to the local FHA office
for approval, or, if authorized by the FH to do so, from the underwriting
functions themselves. Lenders who are authorized by the FHA to fully underwrite
their own FHA loan applications are called direct endorsement lenders (DE
Lenders). A direct endorsement lender is responsible for the entire mortgage
process, from application for closing. When a direct endorsement lender has
approved and closed a loan, the application for mortgage insurance is submitted
to the FHA.
As the insurer, the FHA incurs full liability for losses resulting from
default and property foreclosure. In turn, the FHA regulates many of the terms
and conditions of the loan. FHA regulations have the force and effect of
law.
FHA loan features.
Any loan intended for submission for FHA insurance has a number of features
that distinguish it from a conventional loan. The most significant of these
features are:
1. Less stringent quality standards. FHA will allow re-establishment of a
credit within two years after a discharge of bankruptcy, when any judgments have
been fully paid, any tax liens have been repaid, or a repayment plan has been
established by the IRS, and within three years after a foreclosure has been
resolved.
2. Low down payment. The 3% cash down payment is generally less than for a
similar conventional loan.
3. No secondary financing is allowed for the down payment. The FHA minimum
down payment for a loan must be paid by the borrower in cash. The borrower is
not allowed to resort to secondary financing from the seller or from any lender
to make up any part of the down payment. The FHA permits the use of either a
nom- repayable gift of money, credit from a portion of rents from pay
rent/purchase contract between a buyer and seller, or some home repairs made by
the purchaser (sweat equity) to be used to satisfy the 3% down payment
costs.
4. Some closing costs may cover the down payment. While a borrower may not
finance any of the closing costs along with the sales price, FHA permits the use
of some closing cost to satisfy the 3% down payment requirement.
5. FHA mortgage insurance is required for the loan regardless of the amount
of the down payment.
6. No prevent penalties are allowed. FHA loan may be paid off in full at any
time with no additional charges. A lender is allowed to require that any such
payment be made on a regular installment due date.
7. The property must be owner occupied. The FHA used to insure investor
properties but they have virtually eliminated all such programs. Two-to-four
unit properties qualify if they are owner occupied.
Other characteristics of FHA loans.
The typical FHA loan has a 30 year term. However, FHA offers long terms as
short as 15 years. They also offer adjustable loans and home repair loans. The
rate is fully negotiable between the borrower and lender. They still tend to be
lower than college loan rates because the lenders risk is lessened by the FHA
mortgage insurance.
A lender may only charge 1% ordination of the own FHA loan, but is allowed to
charge discount points. Typically, discount points allow a lender to recover and
the interest loss upfront. Although discount points may be paid by the buyer in
an FHA transaction, they are almost always paid by the seller.
The lender is required to obtain an appraisal of the property from an FHA
approved appraiser. The a praise it will note any health and safety deficiencies
and necessary repairs needed on a validation conditions form. The lender is
required to provide the buyer with a home-buyer summary of all the deficiencies
noted by the appraiser. All problems with health and safety conditions, as well
as necessary repairs, must be completed before the FHA will issue insurance on
the property.
Income qualifications and a maximum amounts .
There is no minimum income requirement for an FHA loan. Borrowers of the show
two years of steady employment and demonstrate that they have consistently paid
their bills on time. The FHA has a ratio of 29% and 41%. This means that a
payment for a home loan may not exceed 29% of the borrower's gross monthly
income and all installment debt, including the home loan payment, may not exceed
41%.
The FHA sets maximum mortgage loan amounts. These amounts, which vary by
state as well as location within a state, are adjusted yearly. FHA loan limits
are found on HUD website.
