FHA Loan Programs

The down payment for an FHA mortgage can be 100% gift funds. This is one of the key benefits to the FHA program.

Verification of the source of gift money is not required. However, it is necessary that the gift funds be deposited in the borrower’s bank or savings account, or in an escrow account, prior to underwriting approval. Proof of deposit is required.

Gift donors are restricted primarily to a relative of the borrower. They can also be certain organizations, such as a labor union or charitable organization. Contact your local branch for complete information.

FHA has permitted streamline refinances on insured mortgages since the early 1980′s. The word streamline refers only to the amount of documentation and underwriting that needs to be performed by the mortgage company, and does not mean that there are no costs involved in the transaction.

The basic requirements of a streamline refinance are:

• The mortgage to be refinanced must already be FHA insured.
• The mortgage to be refinanced should be current (not delinquent).
• The refinance is to result in a lowering of the borrower’s monthly principal and interest payments.
• No cash may be taken out on mortgages refinanced using the streamline refinance process.

Companies may offer streamline refinances in several ways. Some companies offer “no cost” refinances (actually, no out of pocket expenses to the borrower) by charging a higher rate of interest on the new loan than if the borrower financed or paid the closing costs in cash. From this premium, the company pays any closing costs that are incurred on the transaction.

Companies may offer streamline refinances and include the closing costs into the new mortgage amount. This can only be done if there is sufficient equity in the property, as determined by an appraisal. Streamline refinances can also be done without appraisals, but the new loan amount cannot exceed what is currently owed, i.e., closing costs may not be added to the new mortgage with those costs either paid in cash or through the premium rate as described above. Investment properties (properties in which the borrower does not reside in as his or her principal residence) may only be refinanced without an appraisal and, thus, closing costs may not be included in the new mortgage amount.

There may be closing costs customary or unique to a certain locality, but closing costs are usually made up of the following:

• Attorney’s or escrow fees (yours and your lender’s if applicable)
• Property taxes (to cover tax period to date)
• Interest (paid from date of closing to 30 days before first monthly payment)
• Loan origination fee (covers lender’s administrative costs)
• Recording fees
• Survey fee
• First premium of mortgage insurance (if applicable)
• Title insurance (yours and your lender’s)
• Loan discount points
• First payment to escrow account for future real estate taxes and insurance
• Paid receipt for homeowner’s insurance policy (and fire and flood insurance if applicable)
• Any documentation preparation fees

Section 203(k) insurance enables homebuyers and homeowners to finance both the purchase (or refinancing) of a house and the cost of its rehabilitation through a single mortgage or to finance the rehabilitation of their existing home.

Section 203(k) is one of many FHA programs that insure mortgage loans, and thus encourage mortgage companies to make mortgage credit available to borrowers who would not otherwise qualify for conventional loans on affordable terms (such as first time homebuyers) and to residents of disadvantaged neighborhoods (where mortgages may be hard to get).

Section 203(k) fills a unique and important need for homebuyers in another way as well. When buying a house that is need of repair or modernization, homebuyers usually have to follow a complicated and costly process, first obtaining financing to purchase the property, then getting additional financing for the rehabilitation work, and finally finding a permanent mortgage after rehabilitation is completed to pay off the interim loans. The interim acquisition and improvement loans often have relatively high interest rates and short repayment terms.

However, Section 203(k) offers a solution that helps both borrowers and mortgage companies, insuring a single, long term, fixed or adjustable rate loan that covers both the acquisition and rehabilitation of a property. Section 203(k) insured loans save borrowers time and money, and also protect mortgage companies by allowing them to have the loan insured even before the condition and value of the property may offer adequate security. For housing rehabilitation activities that do not also require buying or refinancing the property, borrowers may also consider HUD’s Title I Home Improvement Loan program.

The extent of the rehabilitation covered by Section 203(k) insurance may range from relatively minor to virtual reconstruction: a home that has been demolished or will be razed as part of rehabilitation is eligible, for example, provided that the existing foundation system remains in place. Section 203(k)-insured loans can finance the rehabilitation of the residential portion of a property that also has non residential uses; they can also cover the conversion of a property of any size to a one to four unit structure. The types of improvements that borrowers may make using Section 203(k) financing include:

• Structural alterations and reconstruction.
• Modernization and improvements to the home’s function.
• Elimination of health and safety hazards.
• Changes that improve appearance and eliminate obsolescence.
• Reconditioning or replacing plumbing; installing a well and/or septic system.
• Adding or replacing roofing, gutters, and downspouts.
• Adding or replacing floors and/or floor treatments.
• Major landscape work and site improvements.
• Enhancing accessibility for a disabled person.
• Making energy conservation improvements.