WHAT IS A
Generally speaking, a
mortgage is a loan obtained to purchase real estate. The
"mortgage" itself is a lien (a legal claim) on the home
or property that secures the promise to pay the debt.
All mortgages have two features in common: principal and
WHAT IS A LOAN
TO VALUE (LTV) HOW DOES IT DETERMINE THE SIZE OF MY
The loan to value ratio
is the amount of money you borrow compared with the
price or appraised value of the home you are purchasing.
Each loan has a specific LTV limit. For example: With a
95% LTV loan on a home priced at $50,000, you could
borrow up to $47,500 (95% of $50,000), and would have to
pay,$2,500 as a down payment.
The LTV ratio reflects
the amount of equity borrowers have in their homes. The
higher the LTV the less cash homebuyers are required to
pay out of their own funds. So, to protect lenders
against potential loss in case of default, higher LTV
loans (80% or more) usually require mortgage insurance
WHAT TYPES OF
LOANS ARE AVAILABLE AND WHAT ARE THE ADVANTAGES OF EACH?
Fixed Rate Mortgages:
Payments remain the same for the the life of the loan
remains unaffected by interest rate changes and
Mortgages (ARMS): Payments increase or decrease on a
regular schedule with changes in interest rates;
increases subject to limits
Mortgage- Offers very low rates for an Initial
period of time (usually 5, 7, or 10 years); when
time has elapsed, the balance is clue or
refinanced (though not automatically)
Mortgage- Interest rate adjusts only once and
remains the same for the life of the loan
||ARMS linked to
a specific index or margin
offer lower initial interest rates
payments can be lower
borrower to qualify for a larger loan amount
WHEN DO ARMS
An ARM may make sense
If you are confident that your income will increase
steadily over the years or if you anticipate a move in
the near future and aren't concerned about potential
increases in interest rates.
WHAT ARE THE
ADVANTAGES OF 15- AND 30-YEAR LOAN TERMS?
||In the first
23 years of the loan, more interest is paid off
than principal, meaning larger tax deductions.
and costs of living increase, mortgage payments
become a smaller part of overall expenses.
usually made at a lower interest rate.
built faster because early payments pay more
CAN I PAY OFF
MY LOAN AHEAD OF SCHEDULE?
Yes. By sending in
extra money each month or making an extra payment at the
end of the year, you can accelerate the process of
paying off the loan. When you send extra money, be sure
to indicate that the excess payment is to be applied to
the principal. Most lenders allow loan prepayment,
though you may have to pay a prepayment penalty to do
so. Ask your lender for details.
SPECIAL MORTGAGES FOR FIRST-TIME HOMEBUYERS?
Yes. Lenders now offer
several affordable mortgage options which can help
first-time homebuyers overcome obstacles that made
purchasing a home difficult in the past. Lenders may now
be able to help borrowers who don't have a lot of money
saved for the down payment and closing costs, have no or
a poor credit history, have quite a bit of long-term
debt, or have experienced income irregularities.
HOW LARGE OF A
DOWN PAYMENT DO I NEED?
There are mortgage
options now available that only require a down payment
of 5% or less of the purchase price. But the larger the
down payment, the less you have to borrow, and the more
equity you'll have. Mortgages with less than a 20% down
payment generally require a mortgage insurance policy to
secure the loan. When considering the size of your down
payment, consider that you'll also need money for
closing costs, moving expenses, and - possibly -repairs
INCLUDED IN A MONTHLY MORTGAGE PAYMENT?
The monthly mortgage
payment mainly pays off principal and interest. But most
lenders also include local real estate taxes,
homeowner's insurance, and mortgage insurance (if
AFFECT MORTGAGE PAYMENTS?
The amount of the down
payment, the size of the mortgage loan, the interest
rate, the length of the repayment term and payment
schedule will all affect the size of your mortgage
HOW DOES THE
INTEREST RATE FACTOR IN SECURING A MORTGAGE LOAN?
A lower interest rate
allows you to borrow more money than a high rate with
the some monthly payment. Interest rates can fluctuate
as you shop for a loan, so ask-lenders if they offer a
rate "lock-in"which guarantees a specific interest rate
for a certain period of time. Remember that a lender
must disclose the Annual Percentage Rate (APR) of a loan
to you. The APR shows the cost of a mortgage loan by
expressing it in terms of a yearly interest rate. It is
generally higher than the interest rate because it also
includes the cost of points, mortgage insurance, and
other fees included in the loan.
WHAT HAPPENS IF
INTEREST RATES DECREASE AND I HAVE A FIXED RATE LOAN?
If interest rates drop
significantly, you may want to investigate refinancing.
Most experts agree that if you plan to be in your house
for at least 18 months and you can get a rate 2% less
than your current one, refinancing is smart. Refinancing
may, however, involve paying many of the same fees paid
at the original closing, plus origination and
Discount points allow
you to lower your interest rate. They are essentially
prepaid interest, With each point equaling 1% of the
total loan amount. Generally, for each point paid on a
30-year mortgage, the interest rate is reduced by 1/8
(or.125) of a percentage point. When shopping for loans,
ask lenders for an interest rate with 0 points and then
see how much the rate decreases With each point paid.
Discount points are smart if you plan to stay in a home
for some time since they can lower the monthly loan
payment. Points are tax deductible when you purchase a
home and you may be able to negotiate for the seller to
pay for some of them.
WHAT IS AN
ESCROW ACCOUNT? DO I NEED ONE?
Established by your
lender, an escrow account is a place to set aside a
portion of your monthly mortgage payment to cover annual
charges for homeowner's insurance, mortgage insurance
(if applicable), and property taxes. Escrow accounts are
a good idea because they assure money will always be
available for these payments. If you use an escrow
account to pay property tax or homeowner's insurance,
make sure you are not penalized for late payments since
it is the lender's responsibility to make those
WHAT STEPS NEED
TO BE TAKEN TO SECURE A LOAN?
The first step in
securing a loan is to complete a loan application. To do
so, you'll need the following information.
||Pay stubs for
the past 2-3 months
||W-2 forms for
the past 2 years
for the past 2 years
||Proof of any
description of the property you wish to buy
During the application
process, the lender will order a report on your credit
history and a professional appraisal of the property you
want to purchase. The application process typically
takes between 1-6 weeks.
HOW DO I CHOOSE
THE RIGHT LENDER FOR ME?
Choose your lender
carefully. Look for financial stability and a reputation
for customer satisfaction. Be sure to choose a company
that gives helpful advice and that makes you feel
comfortable. A lender that has the authority to approve
and process your loan locally is preferable, since it
will be easier for you to monitor the status of your
application and ask questions. Plus, it's beneficial
when the lender knows home values and conditions in the
local area. Do research and ask family, friends, and
your real estate agent for recommendations.
PRE-QUALIFYING AND PRE-APPROVAL DIFFERENT?
Pre-qualification is an
informal way to see how much you maybe able to borrow.
You can be 'pre-qualified' over the phone with no
paperwork by telling a lender your income, your
long-term debts, and how large a down payment you can
afford. Without any obligation, this helps you arrive at
a ballpark figure of the amount you may have available
to spend on a house.
Pre-approval is a
lender's actual commitment to lend to you. It involves
assembling the financial records mentioned in Question
47 (Without the property description and sales contract)
and going through a preliminary approval process.
Pre-approval gives you a definite idea of what you can
afford and shows sellers that you are serious about
HOW CAN I FIND
OUT INFORMATION ABOUT MY CREDIT HISTORY?
There are three major
credit reporting companies: Equifax, Experian, and Trans
Union. Obtaining your credit report is as easy as
calling and requesting one. Once you receive the report,
it's important to verify its accuracy. Double check the
"high credit limit,"'total loan," and 'past due"
columns. It's a good idea to get copies from all three
companies to assure there are no mistakes since any of
the three could be providing a report to your lender.
Fees, ranging from $5-$20, are usually charged to issue
credit reports but some states permit citizens to
acquire a free one. Contact the reporting companies at
the numbers listed for more information.
CREDIT REPORTING COMPANIES
WHAT IF I FIND
A MISTAKE IN MY CREDIT HISTORY?
Simple mistakes are
easily corrected by writing to the reporting company,
pointing out the error, and providing proof of the
mistake. You can also request to have your own comments
added to explain problems. For example, if you made a
payment late due to illness, explain that for the
record. Lenders are usually understanding about
WHAT IS A
CREDIT BUREAU SCORE AND HOW DO LENDERS USE THEM?
A credit bureau score
is a number, based upon your credit history, that
represents the possibility that you will be unable to
repay a loan. Lenders use it to determine your ability
to qualify for a mortgage loan. The better the score,
the better your chances are of getting a loan. Ask your
lender for details.
HOW CAN I
IMPROVE MY SCORE?
There are no easy ways
to improve your credit score, but you can work to keep
it acceptable by maintaining a good credit history. This
means paying your bills on time and not overextending
yourself by buying more than you can afford.
HOW DO I CHOOSE THE BEST LOAN - PROGRAM FOR ME?
Your personal situation
will determine the best kind of loan for you. By asking
yourself a few questions, you can help narrow your
search among the many options available and discover
which loan suits you best.
||Do you expect
your finances to changeover the next few years?
planning to live in this home for a long period
comfortable with the idea of a changing mortgage
||Do you wish to
be free of mortgage debt as your children
approach college age or as you prepare for
Your lender can help
you use your answers to questions such as these to
decide which loan best fits your needs.
WHAT IS THE
BEST WAY TO COMPARE LOAN TERMS BETWEEN LENDERS?
First, devise a
checklist for the information from each lending
institution. You should include the company's name and
basic information, the type of mortgage, minimum down
payment required, interest rate and points, closing
costs, loan processing time, and whether prepayment is
Speak with companies by
phone or in person. Be sure to call every lender on the
list the same day, as interest rates can fluctuate
daily. In addition to doing your own research, your real
estate agent may have access to a database of lender and
mortgage options. Though your agent may primarily be
affiliated with a particular lending institution, he or
she may also be able to suggest a variety of different
lender options to you.
ARE THERE ANY
COSTS OR FEES ASSOCIATED WITH THE LOAN ORIGINATION
Yes. When you turn in
your application, you'll be required to pay a loan
application fee to cover the costs of underwriting the
loan. This fee pays for the home appraisal, a copy of
your credit report, and any additional charges that may
be necessary. The application fee is generally
WHAT IS RESPA?
RESPA stands for Real
Estate Settlement Procedures Act. It requires lenders to
disclose information to potential customers throughout
the mortgage process, By doing so, it protects borrowers
from abuses by lending institutions. RESPA mandates that
lenders fully inform borrowers about all closing costs,
lender servicing and escrow account practices, and
business relationships between closing service providers
and other parties to the transaction.
For more information on
RESPA, or call 1-800-569-4287 for a local counseling
WHAT IS A GOOD
FAITH ESTIMATE, AND HOW DOES IT HELP ME?
It's an estimate that
lists all fees paid before closing, all closing costs,
and any escrow costs you will encounter when purchasing
a home. The lender must supply it within three days of
your application so that you can make accurate judgments
when shopping for a loan.
DOES THE LENDER HAVE ANY ADDITIONAL RESPONSIBILITIES?
Lenders are not allowed
to discriminate in any way against potential borrowers.
If you believe a lender is refusing to provide his or
her services to you on the basis of race, color,
nationality, religion, sex, familial status, or
disability, contact HUD's Office of Fair Housing at
1-800-669-9777 (or 1-800-927-9275 for the hearing
RESPONSIBILITIES DO I HAVE DURING THE LENDING PROCESS?
To ensure you won't
fall victim to loan fraud, be sure to follow all of
these steps as you apply for a loan:
||Be sure to
read and understand everything before you sign.
||Refuse to sign
any blank documents.
||Do not buy
property for someone else.
overstate your income.
overstate how long you have been employed.
overstate your assets.
report your debts.
||Do not change
your income tax returns for any reason. Tell the
whole truth about gifts. Do not list fake
co-borrowers on your loan application.
about your credit problems, past and present.
about your intention to occupy the house
||Do not provide
false supporting documents.
AFTER I'VE APPLIED FOR MY LOAN?
It usually takes a
lender between 1-6 weeks to complete the evaluation of
your application. Its not unusual for the lender to ask
for more information once the application has been
submitted. The sooner you can provide the information,
the faster your application will be processed. Once all
the information has been verified the lender will call
you to let you know the outcome of your application. If
the loan is approved, a closing date is set up and the
lender will review the closing with you. And after
closing, you'll be able to move into your new home.
WHAT SHOULD I
LOOK OUT FOR DURING THE FINAL WALK-THROUGH?
This will likely be the
first opportunity to examine the house without
furniture, giving you a clear view of everything. Check
the walls and ceilings carefully, as well as any work
the seller agreed to do in response to the inspection.
Any problems discovered previously that you find
uncorrected should be brought up prior to closing. It is
the seller's responsibility to fix them.
WHAT MAKES UP
There may be closing
cost customary or unique to a certain locality, but
closing cost are usually made up of the following:
escrow fees (Yours and your lender's if
(to cover tax period to date)
from date of closing to 30 days before first
Origination fee (covers lenders administrative
of mortgage Insurance (if applicable)
Insurance (yours and lender's)
to escrow account for future real estate taxes
for homeowner's insurance policy (and fire and
flood insurance if applicable)
documentation preparation fees
WHAT CAN I
EXPECT TO HAPPEN ON CLOSING DAY?
You'll present your
paid homeowner's insurance policy or a binder and
receipt showing that the premium has been paid. The
closing agent will then list the money you owe the
seller (remainder of down payment, prepaid taxes, etc.)
and then the money the seller owes you (unpaid taxes and
prepaid rent, if applicable). The seller will provide
proofs of any inspection, warranties, etc.
Once you're sure you
understand all the documentation, you'll sign the
mortgage, agreeing that if you don't make payments the
lender is entitled to sell your property and apply the
sale price against the amount you owe plus expenses.
You'll also sign a mortgage note, promising to repay the
loan. The seller will give you the title to the house in
the form of a signed deed.
You'll pay the lender's
agent all closing costs and, in turn,he or she will
provide you with a settlement statement of all the items
for which you have paid. The deed and mortgage will then
be recorded in the state Registry of Deeds, and you will
be a homeowner.
WHAT DO I GET
Statement, HUD-1 Form (itemizes services
provided and the fees charged; it is filled out
by the closing agent and must be given to you at
or before closing)
Deed of Trust
Contract (prepared by the seller; your lawyer
should review it)
||Keys to your
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
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
WHAT IS THE
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
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
WHAT IS THE FHA
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
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
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.
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
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
CAN I EXCEED
You may qualify to
exceed if you have:
||a large down
ability to pay more toward your housing expenses
enough to repay the mortgage regardless of
acceptable credit history or limited credit use
less-than-maximum mortgage terms
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
WHAT CAN I USE
TO PAY THE DOWN PAYMENT AND CLOSING COSTS OF AN FHA
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
have been paid
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
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%.
CAN 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
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
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.
HUD-approved housing counseling agency
(1-800-569-4287 or TDD: 1-800-483-2209) and
cooperate with the counselor/lender trying to
||HUD has a
number of special loss mitigation programs
available to help you:
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
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.
Your lender maybe able to help you obtain an
interest-free loan from HUD to bring your
Pre-foreclosure Sale: Allows you to sell your
property and pay off your mortgage loan ,to
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
In any loss mitigation
situation, it is important to remember a few helpful
reasonable alternative to avoid losing your
home, but beware of scams. For example, watch
- 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.
anything you don't understand.
Mortgage insurance is a
policy that protects lenders against some or most of the
losses that result from defaults on home mortgages. It's
required primarily for borrowers making a down payment
of less than 20%.
MORTGAGE INSURANCE WORK? IS IT LIKE HOME OR AUTO
Like home or auto
insurance, mortgage insurance requires payment of a
premium, is for protection against loss, and is used in
the event of an emergency. If a borrower can't repay an
insured mortgage loan as agreed, the lender may
foreclose on the property and file a claim with the
mortgage insurer for some or most of the total losses.
DO I NEED
MORTGAGE INSURANCE? HOW DO I GET IT?
You need mortgage
insurance only if you plan to make a down payment of
less than 20% of the purchase price of the home. The FHA
offers several loan programs that may meet your needs.
Ask your lender for details.
HOW CAN I
RECEIVE A DISCOUNT ON THE FHA INITIAL MORTGAGE INSURANCE
Ask your real estate
agent or lender for information on the HELP program from
the FHA. HELP - Homebuyer Education Learning Program -
is structured to help people like you begin the
homebuying process. It covers such topics as budgeting,
finding a home, getting a loan, and home maintenance. In
most cases, completion of this program may entitle you
to a reduction in the initial FHA mortgage insurance
premium from 2.25% to 1.75% of the purchase price of
your new home.
WHAT IS PMI?
PMI stands for Private
Mortgage Insurance or Insurer. These are privately-owned
companies that provide mortgage insurance. They offer
both standard and special affordable programs for
borrowers. These companies provide guidelines to lenders
that detail the types of loans they will insure. Lenders
use these guidelines to determine borrower eligibility.
PMI's usually have stricter qualifying ratios and larger
down payment requirements than the FHA, but their
premiums are often lower and they insure loans that
exceed the FHA limit.
WHAT IS A
This is the most
commonly used FHA program. It offers a low down payment,
flexible qualifying guidelines, limited lender's fees,
and a maximum loan amount.
WHAT IS A
This is a loan that
enables the homebuyer to finance both the purchase and
rehabilitation of a home through a single mortgage. A
portion of the loan is used to pay off the seller's
existing mortgage and the remainder is placed in an
escrow account and released as rehabilitation is
completed. Basic guidelines for 203(k) loans are as
||The home must
be at least one year old.
||The cost of
rehabilitation must be at least $5,000, but the
total property value - including the cost of
repairs - must fall within the FHA maximum
loan must follow many of the 203(b) eligibility
||Talk to your
lender about specific improvement, energy
efficiency, and structural guidelines.
WHAT IS AN
ENERGY EFFICIENT MORTGAGE (EEM)?
The Energy Efficient
Mortgage allows a homebuyer to save future money on
utility bills. This is done by financing the cost of
adding energy-efficiency features to a new or existing
home as part of an FHA-insured home purchase. The EEM
can be used with both 203(b) and 203(k) loans. Basic
guidelines for EEMs are as follows:
||The cost of
improvements must be determined by a Home Energy
Rating System or by an energy consultant. This
cost must be less than the anticipated savings
from the improvements.
two-unit new or existing homes are eligible;
condos are not.
improvements financed may be 5% of property
value or $4,000, whichever is greater. The total
must fall within the FHA loan limit.
WHAT IS A TITLE
Given by a Lender and
insured by the FHA, a Title I loan is used to make
non-luxury renovations and repairs to a home. It offers
a manageable interest rate and repayment schedule. Loans
are limited to between $5,000 and 20,000. If the loan
amount is under 7,500, no lien is required against your
home. Ask your lender for details.
WHAT OTHER LOAN
PRODUCTS OR PROGRAMS DOES THE FHA OFFER?
The FHA also insures
loans for the purchase or rehabilitation of manufactured
housing, condominiums, and cooperatives. It also has
special programs for urban areas, disaster victims, and
members of the armed forces. Insurance for ARMS is also
available from the FHA.