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First Time Buyers best to get an FHA Home Loan
If you are a first time
home buyer, the time has never been better to explore financing through the FHA
loan program. With subprime mortgage loans taking a hit in the market, many
first time buyers are left out in the cold about the best loan options for them.
FHA Loans may in fact be the answer. While FHA mortgages haven't been as popular
in recent years because of the perceived amount of bureaucracy associated with
obtaining a loan backed by a government entity such as the HUD, new lending
legislation is in the works to help make them more consumer-friendly.
First time home buyers
represent a large share of the lending market and they receive a lot of
attention. Many do not have established credit histories or a lot of money to
put down for a down payment (cause they are usually fresh out of college or
still early in their careers). Currently, FHA loans require a 3% down payment to
obtain home financing and have different FHA mortgage loan limits in different
states. Apply now to obtain more information about the limits and down payment
requirements in your area with us here on Mortgage Loan Place.
We will connect all first
time home buyers with FHA loan experts particular to your area. They will help
explain the different benefits and costs associated with purchasing your first
home with an FHA loan. Many people fail to take the time to learn more about
their options when financing a home - don't be one of them! The FHA might just
be the answer for your FHA Loan.
FHA and HUD Mortgage News
Use the articles below to
keep up to date on the latest news regarding HUD the Department of Housing and
FHA Loans.
HUD SECRETARY
ANNOUNCES DISASTER ASSISTANCE FOR ILLINOIS FLOOD VICTIMS
WASHINGTON – U.S. Housing
and Urban Development Secretary Alphonso Jackson today announced HUD will speed
federal disaster assistance to certain flood-ravaged counties in Illinois and
provide support to homeowners and low-income renters forced from their homes
following severe storms and flooding.
HUD AWARDS $300,000
FOR AFFORDABLE HOUSING AND ECONOMIC DEVELOPMENT IN CEIBA, PUERTO RICO
SAN JUAN, PR – U.S. Housing
and Urban Development Deputy Secretary Roy A. Bernardi today presented the
“Corporation de Desarrollo Economico de Ceiba” (Ceiba Housing and Economic
Development Corporation) with $300,000 to stimulate economic development, create
jobs and produce more affordable housing. Awarded earlier this week, the grant
Bernardi delivered today is part of $16.8 million in grants provided through
HUD's Rural Housing and Economic Development (RHED) Program.
BERNARDI ANNOUNCES
$21 MILLION LOAN GUARANTEE TO DEVELOP PONCE CONVENTION CENTER AND PUBLIC
AQUARIUM
PONCE, PR - Plans to create
a downtown convention district and a new public aquarium are one step closer to
reality today with the announcement that the U.S. Department Housing and Urban
Development approved a nearly $21 million loan guarantee to the Municipality of
Ponce. The federal loan guarantee will provide the Municipality access to
private investment to develop a 92,000 square foot convention center and the new
Oceanic Center of the Caribbean.
HUD DEPUTY SECRETARY
ADDRESSES ANNUAL HOUSING SUMMIT
CAROLINA, PR - U.S.
Department of Housing and Urban Development Deputy Secretary Roy A. Bernardi
today addressed the 15th annual Housing Summit in Carolina, Puerto Rico and
discussed HUD's commitment to affordable housing. The conference, sponsored by
the Puerto Rico Bankers Association, the Puerto Rico Department of Housing, the
Community Housing Development Organization (CHDO) Association, and the Home
Builders Association, brought together 300 participants from the private and
public sector.
HUD DIRECTOR EARNS
DISTINGUISHED GOVERNMENT MEDAL FOR CREATING INNOVATIVE DATABASE
WASHINGTON – Nicole Faison,
a U.S. Housing and Urban Development director, was awarded the prestigious
Service to America Medal last night at a dinner and gala for winners at the
Andrew Mellon Auditorium in Washington, D.C.
Who Should Get an
FHA Mortgage Loan?
FHA Interest Only
Loans
FHA Mortgage Loan
Requirements
How to apply for
an FHA Mortgage Loan
Checklist for
Obtaining an FHA Mortgage Loan
Other FHA Home
Loan Mortgage Programs
FHA Refinancing Upcoming Changes to FHA Mortgage Loan
FHA Loan Homes
Want to experience the joy of home ownership but need a loan? The Federal Housing Administration has been helping people fulfill their dreams of owning a home since 1934.
The FHA insures your loan so that lenders can
offer you better, more affordable rates. Whether you live in a single parent
household or a multi-parent household, the FHA can help you purchase a home or
remodel the home in which you currently live. FHA programs can even help you
make home repairs or energy efficient home improvements. Act now, the FHA can
help! Want more FHA information now? Use one of our loan specialists to learn how
FHA financing can benefit you. Get started now with FHA loan financing!
Currently, FHA financing requires a 3% down payment minimum to obtain a home loan, although legislation changes are proposed that would result in a that would eliminate the requirement and raise home loan limits in high cost areas.
With the new hit in the mortgage lending industry if your credit is not great you best move is a FHA Loan. You can still get a great rate with bad credit. If not you could be looking at High 9% interest rate and up if you have the down payment and can even get approved. FHA Loans are the easiest loans to get today at the lowest rates nationwide.
These are just some of the
many benefits you would receive if you refinance your home with a FHA HOME LOAN.
Now keep in mind that because the FHA does allow you to put such a small
percentage down on your mortgage loan or take out a lot of cash when you
refinance, you are required to carry mortgage insurance on your home until the
equity in your property has built up to 20% or more.
A FHA loan can allow
you to include the costs of your home improvements in your loan. HUD's 203 (k)
program allows you to purchase, or refinance, a home that needs improvements and
include all repair and improvement costs in the loan.
FHA loans can even help you
to make your home more energy-efficient. The FHA recognizes that with a more
energy-efficient home, the homeowner can afford to pay a higher mortgage;
therefore, the FHA can also include these types of repairs in the original loan
also.
If you are considering
refinancing your home mortgage loan, you will want to research a FHA refinancing
loan. You can get help from the
Department of Housing and Urban Development.
WHAT’S AN FHA HOME LOAN?
When it comes
time for most people to buy a home, some sort of loan will usually be needed to
cover the costs of buying a house as well as the price of the home itself. The
median home price in the United States is approximately $215,000, and since the
vast majority of Americans don’t have that kind of cash lying around, they
borrow money, usually in the form of a mortgage loan. An FHA loan is a mortgage
loan that is insured by the U.S. government. Since the government insures the
mortgage loan, lenders will be more willing to give out loans with fewer
requirements and stipulations. With an FHA loan, the government doesn’t actually
give you the mortgage loan, a lender does (lenders can be institutions like
banks or mortgage brokers). Any money used to pay for the home will come from
the lender, not the U.S. government – the government simply insures that loan so
that lenders feel safer about lending to certain people. With government
insurance, lenders will give out more loans, since they know that if a borrower
can’t pay the loan, the government will step in and cover it.
The “FHA” in “FHA
loan” stands for the Federal Housing Administration, a government agency which
is itself a part of the Department of Housing and Urban Development (HUD). FHA
was created in 1934 as a direct result of the Great Depression, one of America’s
worst economic downturns. During the Great Depression, millions of Americans
were unable to make payments on their debts, the banking system failed, and
millions of homes were foreclosed (a process
in which a
mortgage lender takes back a house to sell on an open market).
To combat the
growing problem of indebtedness and a lack of homeownership during this period,
the United States government set up the FHA, which was designed to provide
struggling families with loans so that they could purchase a home. The Great
Depression ended in the late 1930s, and since then FHA loans have been used
basically for the same purpose: to provide low- and moderate-income families
with affordable housing. FHA loans are also great for first-time home buyers and
those who have credit problems.
So why should
anyone get an FHA loan? If you don’t qualify for or can’t afford a conventional
loan (prime or subprime), it is possible that you would qualify for an FHA loan,
since FHA loans have:
1. No credit
score requirements
2. Lower down
payment requirements
3. Low closing
costs
4. Property
condition standards
5. Lower monthly
mortgage insurance
6. Special
discounts for certain individuals
FHA loans, like any type of loan, do have their disadvantages. The most significant disadvantage of FHA loans concerns the loan limits. In areas of the country where homes are expensive, you might not be able to find an FHA loan that can cover the total cost of the house. In places like New York and southern California the maximum loan limits of FHA loans are in the $300,000s, even though the average home prices for these areas is often above $400,000. This doesn’t mean that families in New York and California shouldn’t try to obtain an FHA loan, it just means that they may have to find other ways to finance the entire cost of the house. Furthermore, the FHA is currently asking congress for permission to increase their loan limits. If this legislature passes, then the FHA will be able to reach millions more families and this disadvantage will no longer be a problem.
WHO SHOULD GET AN
FHA MORTGAGE LOAN?
FHA mortgage
loans were initially meant for people affected by the Great Depression. These
days, most individuals who get FHA loans have a low- to moderate-income or are
first-time home buyers. Additionally, there has been a recent increase in people
switching to FHA loans from subprime loans for the safety and reliability
associated with the FHA.
FHA loans are
great for low- to moderate-income families because of the low down payments, low
closing costs, and easy credit qualifications. First-time home buyers are
attracted to FHA loans because when somebody is buying their first home they are
usually too young to have built up a lot of credit. Because FHA loans have no
strict credit requirements, even people with no credit (due to inexperience) can
get financing.
All of these
individuals might benefit from an FHA loan. However, there is definitely a
“market niche” for FHA loans. That is, there is a certain type of person for
whom FHA loans are best. This person:
1. Has some
credit problems that prevent him or her
from getting
prime-market mortgage loans.
2. Can handle the
FHA 3% down payment. Some borrowers may qualify for the 100% No Money Down FHA
Loan program.
3. Wants to
purchase a house that costs less than the
FHA maximum loan
limit.
If you meet these
criteria, then an FHA mortgage loan is probably right for you. To further
maximize the benefit of an FHA loan, here is what your income, credit, loan
amount, and cash reserves should be:
1.
Income: Your income can be
relatively low, but more importantly it should be steady for at least the past 2
years. If not, the FHA might still insure your loan, but proving a steady source
of income (which can be from a number of sources) is always beneficial.
2.
Credit:
Most people who get an FHA loan have credit that doesn’t meet prime pricing
requirements. See “Credit Requirements” below for more information.
3.
Loan Amount: FHA mortgage loans are most beneficial to people who can purchase a
house without going over the FHA home loan limit. These loan limits are
different in every county, so head to the official FHA mortgage limits webpage
and see what the limit is for your area. Make sure that the price of the house
you want to purchase is below this limit. Max
is $417,000 on the New FHA Loan.
4.
4. Cash Reserves: It would be best if the borrower had cash
reserves that exceeded the 3% down payment that FHA requires. To figure out what
your down payment will be, just take the price of the house you want to buy and
multiply it by .03. That is, if the price of your desired house is $100,000 then
your down payment would be $3,000 because 100,000 X .03 = 3,000. If after
reading this section you no longer think an FHA loan is right for you, then you
still have other options for financing your home purchase. Two popular mortgage
options are the “interest-only mortgage” and the “option adjustable-rate
mortgage.” Read the next page for more information on these two types of
mortgages, otherwise skip to the section, “FHA Home Mortgage Loan Requirements”
to continue learning about FHA home loans.
Interest-Only Mortgages
For many people,
when purchasing a home, finances may be limited. There are several options for
people in this situation, and one is the interest-only mortgage. With a regular
mortgage, the scheduled monthly mortgage payment goes towards repaying the
principal (the original size of the loan) as well as the interest (a financial
charge for using the lender’s money). In an interest-only mortgage, the monthly
payment only repays the interest. This option to pay interest only lasts for a
particular period of time, and ranges from a few months to a few years.
The benefits of
an interest-only mortgage are that your monthly payments will usually be lower
than a regular fixed-rate or adjustable-rate mortgage during the interest-only
period. However, it is recommended that during this interest-only period, if you
can afford to pay more than just interest, you should. That way, the principal
amount owed will decrease, and since you are also paying interest, the total
loan amount goes down. Additionally, you may be able to afford a larger or more
luxurious house with an interest-only mortgage, since the payments will be
smaller in the short-term. Another feature that may be available with your
interest-only mortgage is that whenever you make an “extra” payment in order to
reduce your principal, your next month’s payment may be less. This is only
available in interest-only mortgages, and not available in all circumstances.
Since interest-only mortgages are riskier to the lender, there are some drawbacks to this type of mortgage. For starters, lenders usually require a higher interest rate for interest-only mortgages. Furthermore, the interest rate quoted may or may not be fixed during the interest-only period. Most importantly, with all interest-only mortgages, the time will come when the interest-only period will end, and borrowers need to plan ahead and realize that their payments will undoubtedly go up at some point. Caution must be taken, therefore, when getting an interest-only loan. Borrowers will need to consider various situations in the future regarding their financial status, and plan accordingly.
FHA MORTGAGE LOAN REQUIREMENTS
If you have made
it here, then hopefully you have looked over the general information regarding
FHA mortgage loans and have decided that an FHA insured loan is right for you.
Before beginning the process of actually obtaining the FHA mortgage loan, it is
important to look over what the FHA expects of its borrowers. Financial, credit,
and employment requirements may seem daunting at first, but keep in mind that
the FHA is usually much more flexible and accommodating than many private
lending institutions. We’ll go over each type of requirement separately, so take
your time and check to see if you qualify. If you don’t meet one or two of the
requirements, or meet them just barely, feel free to contact FHA and see what
they can do for you. Since every situation is different, you may be able to work
out a solution so that you can obtain an FHA mortgage loan.
Requirements:
• Basics –
To get an FHA mortgage loan, you’ve got to have a valid social security number,
be a legal resident of the United States, and be of legal age to sign on a
mortgage (this age varies from state to state).
• Employment
– Ideally, you’ll be able to show FHA that you’ve maintained steady
employment for the last three years. This would mostly be to prove that you are
capable of making regular mortgage payments without difficulty. However, there
are no fixed employment requirements for an FHA mortgage loan.
• Income –
As with the above category, there are no minimum income requirements for an FHA
loan. Rather, you must simply show that you have had continual income for the
past three years. What constitutes income? Full-time wages from your employer,
part-time pay, overtime pay, bonuses, seasonal pay, pension, child support paid
to you, alimony paid to you, even rent paid by family members to you.
Government-based sources of income can also be included, such as social security
payments, unemployment compensation, military pay, and VA benefits. The FHA
wants to see that you have a steady income because it makes them feel safer
about insuring the money lent to you – people with a steady income are obviously
more likely to make payments on time than people with no steady income. Lastly,
the FHA doesn’t have maximum income limits, either: people with well-paying jobs
or lots of other income can get FHA loans too.
• Credit – One of the main advantages FHA
loans have over conventional loans are the credit requirements. While
conventional loans often demand that the borrower have perfect credit and no
past bankruptcies or foreclosures, FHA is less strict.
i. You do not
need perfect credit to qualify for an FHA loan as long as there is a good reason
for any past credit problems.
ii. If you lost
your job, had a job transfer, suffered a serious illness or had to support
someone suffering a serious illness, this may be reason enough to excuse your
credit history.
iii. There are
two real credit requirements for an FHA mortgage loan: in the past two years,
you should have no bankruptcies, and in the past three years, you should have no
foreclosures (or
deed-in-lieu of foreclosures).
iv. Additionally,
potential borrowers should make sure that any tax debts (also known as “tax
liens”) and other judgments have been paid or otherwise a repayment plan has
been set up to begin paying them.
v. It is
recommended that you have fewer than two “30 day late payments” in the last two
years.
vi. The best way to see if your credit is good
enough to obtain an FHA loan is to get “pre-qualified.” Most FHA mortgage
lenders offer some sort of pre-qualification service in which they will ask you
about your credit history and determine whether or not you’ll be able to get an
FHA loan.
vii. Even if your
credit is deemed unacceptable by the FHA, you may still be able to get an FHA
loan if you meet one or more of these factors:
1. Good ability
to maintain savings
2. Capacity to
make a large down payment
3. Promise of
increased earnings or income
4. Limited use of
credit
5. Large cash
reserves
6. Using the FHA
loan for an energy-efficient residence
7. Some people
who’d like to get an FHA loan do not have any credit history at all. This may be
because they are too young to have any credit built up, prefer to pay their
debts in cash or simply have never borrowed money. These
borrowers can
also get FHA loans, but must prove their ability to make regular mortgage
payments in other ways.
• Debt to Income Ratio – This may sound
like a complicated concept, but the “debt to income ratio” is easy to
understand.
How much of what
you make in a month goes towards debts that you owe? Hypothetically, if you make
$1,000 a month, and you have to pay $250 a month
in debt, then 25%
percent of your income is going towards your debt: that is your debt to income
ratio (250 / 1000 = .25 = 25%).
ii. FHA won’t let
borrowers use more than 29% of their monthly income towards paying off housing
costs. Additionally, borrowers can’t use more than 41%
towards other
long-term debt (both of those figures apply to loans for existing dwellings, for
new construction the figures are 31% and 43%, respectively).
iii. With this in
mind, remember that your income will determine how much your monthly mortgage
payment to FHA will be – your monthly mortgage payment
cannot exceed 29%
of your monthly income.
iv. In some
cases, you can exceed this FHA debt to income ratio, but in order to do this you
must have one of these:
1. Large cash
reserves
2. Good credit
history
3. The ability to
make a large down payment
4. Mortgage terms
that are less than the allowed maximums
5. A decrease in
monthly housing expenses
• Down payment – One of the main things people worry about when buying a home is the down payment (a percentage of the home’s total value to be paid in cash upon obtaining the mortgage loan). For many low- and moderate-income families, a large sum of cash is hard to come by. Fortunately, the FHA has one of the smallest down payment requirements among all home loans. The minimum down payment for an FHA loan is just 3% and will never exceed 5%. Borrowers usually use their own cash reserves to pay the down payment, but can also use cash gifts and private savings to pay it as well. In fact, the FHA allows 100% of the down payment to be a gift from friends, family, or other sources (that is, if you know someone particularly generous, they can pay the entire down payment for you). If you plan to repair or improve the house yourself, you can use this manual labor as a percentage of the down payment, too.
HOW TO OBTAIN AN
FHA
MORTGAGE LOAN
If you’ve decided
that an FHA home loan is right for you and your family, then read on. Getting an
FHA mortgage loan may seem like a complicated process, but as long as you follow
certain steps in order you’ll be financed in no time. Following this easy
step-by-step FHA Loan guide to obtaining an FHA loan, but if you ever have any
questions about the process, don’t hesitate to ask your lender.
Step 1:
Preparation
Prior to applying
for an FHA loan, there are certain things every individual should do to make
sure the process goes smoothly. Since approval for an FHA loan is based
primarily on the documentation you can provide, making sure you have all the
necessary documents available is very important. Here is a list of the documents
you should locate before beginning the FHA loan process:
1. Tax
documents: You’ll need your last two tax returns, W-2’s,
and schedules if
you’re not self-employed. If you are
self-employed,
you’ll need three years worth of tax returns as
well as your YTD
profit & loss statements.
2. Banking
documents: You’ll need your last three complete bank
statements for
all of your bank accounts as well as any statements
from retirement
funds, any 401k’s, mutual funds, stocks, etc.
3. Personal
documents: You’ll need your social security card and
driver’s license
as well as any of the following if you have them:
green card, work
permit, divorce papers or alimony papers.
The other
important documentation you’ll need has to do with your credit. While the FHA
doesn’t have strict credit requirements and is known for financing people with a
poor credit history, the FHA will examine your credit to determine whether or
not you’ll qualify for a loan. To do this, they’ll request you give them your
most recent bill statements, your last landlord’s contact information, any
bankruptcy papers, and any other papers related to your credit.
Additionally, the FHA will check your credit
report. You are entitled to one free credit report every year from the “big
three” credit reporting agencies and you should make use of that fact. Head to
www.annualcreditreport.com to get copies of your credit report and see it before
the FHA does. Note: if you want to know your credit score (a measure of your
credit expressed as a three digit number – higher is better) you’ll have to pay
approximately $18.00 for it to each of the three companies, Equifax, Experian,
and Trans Union.
If after
examining your credit report you notice any errors (nearly three quarters of all
credit reports contain at least one error, according to the Government
Accounting Office), you can contact the credit agency and work to remove the
mistake. Sometimes, documents that describe how a family illness, injury, or
loss of job contributed to credit problems can be attached to your credit
report. Do this before the FHA obtains your credit report.
Step 2:
Searching for FHA Lenders
There are a few
places you can begin your search for lenders. Locally, the obvious choice is to
check the phone book. If you can’t find any listings related specifically to FHA
loans, call another bank or lending institution you are familiar with and trust,
and ask them if they can recommend anyone for an FHA loan. These days, however,
more and more borrowers are locating their lenders on the internet. Searching
for terms such as “FHA loan” in a reliable search engine such as Google or
Yahoo! will produce thousands of results, so it’s important to find a lender
that you can trust. Furthermore, not all lenders can do business in every state,
so be sure to find out if your preferred lender can help you finance your home
in your state.
Step 3:
Contacting the Lenders
When contacting a
FHA lender, ask them if they originate FHA loans. If they do, be sure to ask
about their interest rates and other fees that you’d be required to pay. Ask
them about their loan terms and credit requirements. Ask them if they will do
“pre-approvals,” which are necessary when you begin house-hunting. Keep in mind
that you do not have to take a loan from a lending institution just because they
pre-approved you. Don’t go through a pre-approval process with a lender that you
don’t like, however. If their rates are too high or their terms too strict you
should just move on to another lender.
Keep track of the
various FHA interest rates and terms that you are quoted by the mortgage
lenders. This is important for the next step.
Step 4:
Shopping Around for Lenders
This step is
extremely important. Every lender is different, so be sure to shop around for
multiple lenders before making any decisions. Some banks may offer you extremely
low interest rates and great contract terms, other might not. Every situation is
different when it comes to mortgages, so keep track of the rates you are quoted.
Ask around if other people have done business with the lenders you are
considering and see what they thought. Keep in mind that lending institutions
compete over borrowers because every mortgage that they close means more money
for them. Be wary of any lender that wants you to commit to a contract
immediately. Furthermore, if a deal sounds too good to be true, it probably is.
Step 5:
Choosing a Lender and House-Hunting
Once you’ve found
a trustworthy lender with acceptable interest rates and good mortgage terms, the
next thing you need to do is get pre-approved. The lender will ask you for
credit information and other details of the financial aspects of your life and
the pre-approval process can take anywhere from an hour to a month. How long
your pre-approval takes is largely based on how complex your financial situation
is.
Usually, a
realtor will not let you sign a contract to buy a house until you’ve been
pre-approved. This is why it’s important to get pre-approved before
house-hunting. Oftentimes, it’s not possible to do it any other way.
Additionally, if you’ve been pre-approved prior to house-hunting, then the real
estate agent will know your price limit when looking for homes.
Step 6:
Completing the Loan Application
At this point,
you should be pre-approved by a trustworthy lender with reasonable rates, have a
house picked out, and have signed with a realtor for that house. Now you’ve got
to actually complete the loan application for the lender and by proxy the FHA.
You’ll probably have needed the documents listed in Step 1for the pre-approval
process, but you might also need them now for the FHA to approve you and thus
complete the loan application. You may need to pay the lender certain fees when
completing the loan application. These fees are different for every lender.
At this point
you’ll probably also need to pay the down payment and any mortgage insurance.
With an FHA loan, the down payment is at least 3% of the home’s purchase price,
though it may be higher as well. Make sure you have this money (whether it be
yours or a gift) ready at this point.
Because you will
be putting down as little as 3 to 5 percent for the down payment, you are
required to pay mortgage insurance to cover the risk incurred by the lender. An
up-front mortgage insurance premium is required and can be financed. The monthly
mortgage insurance payments must be paid each month with the mortgage payment.
Checklist for
Obtaining a
FHA Mortgage Loan
Do you have all
of the necessary documents handy for the FHA loan process?
Have you checked
your credit and fixed any mistakes on the credit report?
Searched for
lenders in the phone book and on the internet?
Contacted the
lenders you are interested in and asked them about their rates and terms?
Kept track of
those terms and FHA interest rates for comparison?
Made sure the FHA
lenders you are interested in can operate in your state?
Compared all of
the FHA lenders you contacted and asked around for further information?
Chosen a
trustworthy FHA lender and gotten pre-approved by them?
Gone house
hunting within your budget?
Completed the FHA
loan application, paid the down payment, and paid any FHA MIP mortgage
insurance?
The FHA has a
number of programs that are intended to provide large discounts on homes for
certain people. These discounts usually involve HUD Homes – houses that are
owned by the Department of Housing and Urban Development. When someone gets an
FHA loan and can no longer make their monthly payments, the FHA will “foreclose”
on the house – they’ll take possession of the property to sell it to the public.
These properties are the HUD Homes and they can be very beneficial for people
looking to purchase a house:
1.
FHA and HUD want to sell these HUD Homes as quickly as possible in order
to make back as much money as possible. This can be to the buyer’s advantage.
2.
HUD Homes for sale are easily accessible through a number of internet listing
sites. Visit www.hud.gov/homes to view a list of these sites, organized by
state. Keep in mind that these internet listing sites are not operated by the
government – they are run by management
3.
companies under contract to HUD. Any real estate broker can make an offer for a
HUD Home.
3. Sometimes HUD
will use an auction format to sell HUD Homes.
4.
Owner-occupants are people that live
in the home they
purchase. HUD puts HUD Homes up for sale to owner-occupants first. Following
that, other people, such as real estate investors, can purchase a HUD Home.
5. People who
want to buy a HUD Home must either have cash or qualify for a home loan. One can
also use an FHA loan to purchase and finance a HUD Home.
6. HUD Homes are
sold as-is – anybody buying a HUD Home should get the home inspected.
7. There are a
few extraordinary programs operated by HUD that directly involve HUD Homes.
Formerly known as the “Teacher Next Door” and “Officer Next Door” programs, they
are now collectively called the “Good Neighbor Next Door” program. In this
program, any teacher, law enforcement officer, emergency medical technician or
firefighter can purchase a HUD Home located in a “revitalization area” at a 50%
discount. That is, if HUD lists a home at $100,000, then a participant in the
Good Neighbor Next Door program will be able to purchase that house for only
$50,000. This deal may seem too good to be true – it’s difficult to get things
at the grocery store for 50% off, let alone get a home for 50% off. But the
purpose of the Good Neighbor Next Door program is to improve the state of
America’s communities, and HUD believes that this huge discount will attract
upstanding citizens to areas where they are needed.
In order to be an
eligible participant, you must:
1. Be employed
full-time
2. By employed as
a teacher, law enforcement officer, firefighter
or emergency
medical technician
3. Be able to
live in the discounted HUD Home for 3 full years
4. Use a real
estate broker or agent to buy the discounted HUD Home
If you meet these
criteria and can pay in cash or prove that you can get financing, then you can
participate in the Good Neighbor Next Door program. Not only can you buy a HUD
Home in a revitalization area for 50% off, your down payment is also only $100.
But what is a “revitalization area,” anyway? Revitalization areas are located
across the United States and usually have one of the following:
1. Very low
income compared to the surrounding metropolitan
area or state
2. Many vacant or
foreclosed properties
3. Low
homeownership rate
4. Above-average
crime rate
HUD sees
revitalization areas as places that are ripe for improvement and believe that
having teachers and police officers move into the areas will help development.
Though “Good Neighbors” must reside in the home for 3 years, after that period
of time they can sell the home and keep any profit for themselves.
FHA REFINANCING
Individuals who
have obtained an FHA mortgage loan have lives like anyone else. These lives can
change in subtle and dramatic ways, both financially and personally. Sometimes
these changes, as well as changes in the mortgage loan market, may result in the
desire to refinance one’s FHA mortgage loan. A mortgage refinance essentially
involves acquiring another mortgage to replace an existing one. There are two
main types of FHA refinances, “regular” and “streamline.” Each type has a
different purpose and process that borrowers must go through.
There are many
reasons for getting a regular FHA refinance, including paying off an existing
mortgage, dealing with a divorce or property settlement, and utilizing the “cash
out” option. The regular refinance can be used to pay off any existing mortgage,
whether it is conventional, VA or FHA. Additionally, a “cash-out” refinance can
be used when the borrower wishes to borrow against their house and take out a
portion of their home’s equity in cash. That cash can then be used to pay off
debts or finance any other expenses.
An FHA
“streamline” refinance can be used to reduce the principal or interest payments,
add or delete individuals from the title, change to a loan with a different term
(shorter or longer) or change to a fixed rate or adjustable rate mortgage. In
regards to the last example, if a borrower wishes to switch to a loan with a
steady payment amount, month after month, then they may want to switch to fixed
rate mortgage. Conversely, if the borrower’s fixed rate monthly mortgage payment
is too high, they may want to temporarily switch to an adjustable rate mortgage,
depending on the state of the mortgage loan market. Another option for a person
in this situation would be to refinance to a loan with a longer term, in which
the monthly payments would also go down. It should be noted that no cash can be
taken out on “streamline” mortgage refinances.
UPCOMING CHANGES TO
FHA MORTGAGE LOANS
Brian Montgomery,
Assistant Secretary for Housing, testified recently before the House Financial
Services Committee that modernizing the Federal Housing Administration is of
paramount importance for America’s “troubled subprime borrowers.” The FHA has
been insuring mortgage loans for low and moderate income families since the
depths of the Great Depression, but these loans became unpopular with the advent
of the subprime market. However, subprime mortgage loans have proven to be
extremely risky for borrowers with bad credit or low income, a problem which has
resulted in a recent surge of foreclosures. Home foreclosures not only force
borrowers out of their place of residence, but also cost the lender an average
of $40,000 and can wreak havoc on real estate investors, lenders, and
communities at large.
By approving of
the modernization reforms, Montgomery claimed that the “FHA could potentially
assist tens of thousands more borrowers who need an exit strategy from their
subprime mortgages.” Some of the proposed changes include:
•Removal of the
mandatory 3% down payment which many low income borrowers cannot afford. The FHA
plans to switch to a more flexible down payment option.
•Increasing the
limits of FHA mortgage loans. Traditionally, FHA had standard loan limits which
were often lower than those of subprime mortgage loans.
In areas of the
country where housing costs are relatively high, many individuals looking to
purchase a home could not, as the old FHA loan limits were below
the median house
prices. With these changes, people in states like New York and California will
be able to obtain an FHA loan that will have a loan limit high enough for homes
in those areas.
• Creating a new
risk-based structure. Currently, all borrowers who apply for an FHA loan are
subject to a standard premium. In the new structure, the premium would be based
on the credit profile of the borrower and would shift up or down based on that
borrower’s level of risk to the lender.
All of these modifications are part of the
Expanding American Homeownership Act which passed the House last year by an
overwhelming majority. With this new structure, the FHA would not only be able
to reach thousands more borrowers, but it would present “a safer, more
affordable financing option than many subprime loans,” according to Montgomery.
By modernizing its practices and requirements, the Federal Housing
Administration will be able to continue increasing homeownership among
low-income Americans, minorities, the homeless, and the elderly.
Though these sweeping changes to FHA policy will give the most aid to first-time home buyers and families without previous mortgages, the FHA will also continue to offer FHA refinancing options for those who are still working on another loan. As previously noted, many low and moderate income families have found themselves unable to make monthly mortgage payments, mainly due to risky and financially unsound loans. As more and more individuals wish to refinance to a safer, more stable loan, the FHA is there to assist. The number of conventional to FHA Loan refinances has almost doubled in the last year, and as long as borrowers meet a few simple requirements, they will qualify for a more reliable FHA refinance.