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Buying A New Home
HOW CAN HUD and the FHA HELP ME BECOME a HOMEOWNER
WHAT IS THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT?
Also known as HUD, the U.S. Department of Housing and
Urban Development was established in 1965 to develop
national policies and programs to address housing needs
in the U.S. One of HUD's primary missions is to create
a suitable living environment for all Americans by developing
and improving the country's communities and enforcing
fair housing laws
HOW DOES HUD HELP HOMEBUYERS AND HOMEOWNERS?
HUD helps people by administering a variety of programs
that develop and support affordable housing. Specifically,
HUD plays a large role in homeownership by making loans
available for lower- and moderate-income families through
its FHA mortgage insurance program and its HUD Homes
program. HUD owns homes in many communities throughout
the U.S. and offers them for sale at attractive prices
and economical terms. HUD also seeks to protect consumers
through education, Fair Housing Laws, and housing rehabilitation
initiatives.
WHAT IS THE FHA?
Now an agency within HUD, the Federal Housing Administration
was established in 1934 to advance opportunities for
Americans to own homes. By providing private lenders
with mortgage insurance, the FHA gives them the security
they need to lend to first-time buyers who might not
be able to qualify for conventional loans. The FHA has
helped more than 26 million Americans buy a home.
HOW CAN THE FHA ASSIST ME IN BUYING A HOME?
The FHA works to make homeownership a possibility for
more Americans. With the FHA, you don't need perfect
credit or a high-paying job to qualify for a loan. The
FHA also makes loans more accessible by requiring smaller
down payments than conventional loans. In fact, an FHA
down payment could be as little as a few months rent.
And your monthly payments may not be much more than
rent.
HOW IS THE FHA FUNDED?
Lender claims paid by the FHA mortgage insurance program
are drawn from the Mutual Mortgage Insurance fund. This
fund is made up of premiums paid by FHA-insured loan
borrowers. No tax dollars are used to fund the program.
WHO CAN QUALIFY FOR FHA LOANS
anyone who meets the credit requirements, can afford
the mortgage payments and cash investment, and who plans
to use the mortgaged property as a primary residence
may apply for an FHA-insured loan.
WHAT IS THE FHA LOAN LIMIT?
FHA loan limits vary throughout the country, from $115,200
in low-cost areas to $208,800 in high-cost areas. The
loan maximums for multi-unit homes are higher than those
for single units and also vary by area.
Because these maximums are linked to the conforming
loan limit and average area home prices, FHA loan limits
are periodically subject to change. Ask your lender
for details and confirmation of current limits.
WHAT ARE THE STEPS INVOLVED IN THE FHA LOAN PROCESS?
With the exception of a few additional forms, the FHA
loan application process is similar to that of a conventional
loan (see Question 47). With new automation measures,
FHA loans may be originated more quickly than before.
And, if you don't prefer a face-to-face meeting, you
can apply for an FHA loan via mail, telephone, the Internet,
or video conference.
HOW MUCH INCOME DO I NEED TO HAVE TO QUALIFY FOR AN
FHA LOAN?
There is no minimum income requirement. But you must
prove steady income for at least three years, and demonstrate
that you've consistently paid your bills on time.
WHAT QUALIFIES AS AN INCOME SOURCE FOR THE FHA?
Seasonal pay, child support, retirement pension payments,
unemployment compensation, VA benefits, military pay,
Social Security income, alimony, and rent paid by family
all qualify as income sources. Part-time pay, overtime,
and bonus pay also count as long as they are steady.
Special savings plans-such as those set up by a church
or community association - qualify, too. Income type
is not as important as income steadiness with the FHA.
CAN I CARRY DEBT AND STILL QUALIFY FOR FHA LOANS?
Yes. Short-term debt doesn't count as long as it can
be paid off within 10 months. And some regular expenses,
like child care costs, are not considered debt. Talk
to your lender or real estate agent about meeting the
FHA debt-to-income ratio.
WHAT IS THE DEBT-TO-INCOME RATIO FOR FHA LOANS?
The FHA allows you to use 29% of your income towards
housing costs and 41% towards housing expenses and other
long-term debt. With a conventional loan, this qualifying
ratio allows only 28% toward housing and 36% towards
housing and other debt
CAN I EXCEED THIS RATIO?
You may qualify to exceed if you have:
- a large down payment
- a demonstrated ability to pay more toward your housing
expenses
- substantial cash reserves
- net worth enough to repay the mortgage regardless
of income
- evidence of acceptable credit history or limited credit
use
- less-than-maximum mortgage terms
- funds provided by an organization
- a decrease in monthly housing expenses
HOW LARGE A DOWN PAYMENT DO I NEED WITH AN FHA LOAN?
You must have a down payment of at least 3% of the
purchase price of the home. Most affordable loan programs
offered by private lenders require between a 3%-5% down
payment, with a minimum of 3% coming directly from the
borrower's own funds.
WHAT CAN I USE TO PAY THE DOWN PAYMENT AND CLOSING
COSTS OF AN FHA LOAN?
Besides your own funds, you may use cash gifts or money
from a private savings club. If you can do certain repairs
and improvements yourself, your labor may be used as
part of a down 8 payment (called -sweat equity").
If you are doing a lease purchase, paying extra rent
to the seller may also be considered the same as accumulating
cash.
HOW DOES MY CREDIT HISTORY IMPACT MY ABILITY TO QUALIFY?
The FHA is generally more flexible than conventional
lenders in its qualifying guidelines. In fact, the FHA
allows you to re-establish credit if:
- two years have passed since a bankruptcy has been
discharged
- all judgments have been paid
- any outstanding tax liens have been satisfied or appropriate
arrangements have been made to establish a repayment
plan with the IRS or state Department of Revenue
- three years have passed since a foreclosure or a deed-in-lieu
has been resolved
CAN I QUALIFY FOR AN FHA LOAN WITHOUT A CREDIT HISTORY?
Yes. If you prefer to pay debts in cash or are too
young to have established credit, there are other ways
to prove your eligibility. Talk to your lender for details.
WHAT TYPES OF CLOSING COSTS ARE ASSOCIATED WITH FHA-INSURED
LOANS?
Except for the addition of an FHA mortgage insurance
premium, FHA closing costs are similar to those of a
conventional loan outlined in Question 63. The FHA requires
a single, upfront mortgage insurance premium equal to
2.25% of the mortgage to be paid at closing (or 1.75%
if you complete the HELP program- see Question 91).
This initial premium may be partially refunded if the
loan is paid in full during the first seven years of
the loan term. After closing, you will then be responsible
for an annual premium - paid monthly - if your mortgage
is over 15 years or if you have a 15-year loan with
an LTV greater than 90%.
8CAN I ROLL CLOSING COSTS INTO my FHA LOAN?
No. Though you can't roll closing costs into your FHA
loan, you may be able to use the amount you pay for
them to help satisfy the down payment requirement. Ask
your lender for details.
ARE FHA LOANS ASSUMABLE?
Yes. You can assume an existing FHA-insured loan, or,
if you are the one deciding to sell, allow a buyer to
assume yours. Assuming a loan can be very beneficial,
since the process is streamlined and less expensive
compared to that for a new loan. Also, assuming a loan
can often result in a lower interest rate. The application
process consists basically of a credit check and no
property appraisal is required. And you must demonstrate
that you have enough income to support the mortgage
loan. In this way, qualifying to assume a loan is similar
to the qualification requirements for a new one.
WHAT SHOULD I DO IF I CAN'T MAKE A PAYMENT ON LOAN?
Call or, write to your lender as soon as possible.
Clearly explain the situation and be prepared to provide
him or her with financial information.
ARE THERE ANY OPTIONS IF I FALL BEHIND ON MY LOAN PAYMENTS?
Yes. Talk to your lender or a HUD-approved counseling
agency for details. Listed below are a few options that
may help you get back on track.
For FHA loans:
- Keep living in your home to qualify for assistance.
- Contact a HUD-approved housing counseling agency (1-800-569-4287
or TDD: 1-800-483-2209) and cooperate with the counselor/lender
trying to help you.
- HUD has a number of special loss mitigation programs
available to help you:
- Special Forbearance: Your lender will arrange for
a revised repayment plan which may Include temporary
reduction or suspension of payments; you can qualify
by having an Involuntary reduction in your Income or
Increase In living expenses.
- Mortgage Modification: Allows refinance debt and/or
extend the term of the your mortgage loan which may
reduce your monthly payments; you can qualify if you
have recovered from financial problems, but net Income
Is less than before.
- Partial Claim: Your lender maybe able to help you
obtain an interest-free loan from HUD to bring your
mortgage current.
- Pre-foreclosure Sale: Allows you to sell your property
and pay off your mortgage loan ,to avoid foreclosure.
- Deed-in lieu of Foreclosure: Lets you voluntarily
"give back" your property to the lender; it
won't save your house but will help you avoid the costs,
time, and effort of the foreclosure process.
- If you are having difficulty with an-uncooperative
lender or feel your loan servicer is not providing you
with the most effective loss mitigation options, call
the FHA Loss Mitigation Center at 1-888-297-8685 for
additional help.
For Conventional Loans:
Talk to your lender about specific loss mitigation
options. Work directly with him or her to request a
"workout packet." A secondary lender, like
Fannie Mae or Freddie Mac, may have purchased your loan.
Your lender can follow the appropriate guidelines set
by Fannie or Freddie to determine the best option for
your situation.
Fannie Mae does not deal directly with the borrower.
They work with the lender to determine the loss mitigation
program that best fits your needs.
Freddie Mac, like Fannie Mae, will usually only work
with the loan servicer. However, if you encounter problems
with your lender during the loss mitigation process,
you can coil customer service for help at 1-800-FREDDIE
(1-800-373-3343).
In any loss mitigation situation, it is important to
remember a few helpful hints:
- Explore every reasonable alternative to avoid losing
your home, but beware of scams. For example, watch out
for:
Equity skimming: a buyer offers to repay the mortgage
or sell the property if you sign over the deed and move
out.
Phony counseling agencies: offer counseling for a fee
when it is often given at no charge.
- Don't sign anything you don't understand.
Getting Started
Searching For Your New Home
General Financing, Questions: The Basics
First Steps
Finding The Right Loan For You
Closing
How Can HUD And The FHA help Me
Become a Homeowner
Mortgage Insurance
FHA Products
Real Estate Trivia
Question: What was the greatest land grant ever given to an English subject?
Answer: William Penn arrived in October, 1682, to take over his enormous grant that later became Pennsylvania and Delaware.
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