Choose from Several FHA Mortgage Programs to find the right loan for your needs.

FHA Adjustable Rate Mortgages

ARMs (Adjustable Rate Mortgage)  Help Homeowners When Rates are High

The FHA ARM is a HUD mortgage specifically designed for low and moderate-income families who are trying to make the transition into home ownership. This program, used in conjunction with other FHA programs, can help keep initial interest rates and mortgage payments to a minimum. Also referred to as Section 251, FHA's Adjustable Rate Mortgage Program insures home purchases or loan refinances on loans with interest rates that may increase or decrease over time.

HOW IT WORKS

Through this and other types of mortgage insurance programs, the lender helps low and moderate-income families purchase homes by keeping the initial costs down. By serving as an umbrella under which lenders have the confidence to extend loans to those who may not meet conventional loan requirements, FHA's mortgage insurance allows individuals to qualify who may have been previously denied for a home loan by conventional underwriting guidelines. It also protects lenders against loan default on mortgages for properties that include manufactured homes, single-family and multifamily properties, and some health-related facilities.

AVAILABLE ASSISTANCE

FHA's most popular home loan is the Fixed-Rate 203(b) loan but there are also many other programs available based on the 203(b) that have additional features. One of these is the Section 251 Adjustable Rate Mortgage program which provides insurance for Adjustable Rate Mortgages. When interest rates are high, Adjustable Rate Mortgages keep the initial interest rate on a mortgage low which allows borrowers to qualify for the financing they need.

The beauty of the Section 251 program is that it goes hand-in-hand with other widely used FHA single family products such as:

• Mortgage Insurance for One to Four Family Homes (Section 203(b))
• Single-Family Rehabilitation Mortgage Insurance (Section 203(k))
• Single-Family Mortgage Insurance for Condominium Units (Section 234(c))

While the Section 251 program helps to keep mortgage interest rates and payments low they may change over the life of the loan. The maximum amount of fluctuation in your interest rate in any given year cannot exceed 1 percentage point. And over the life of your loan, the interest rate cannot increase more than 5 percent from your initial rate.

The terms of the Adjustable Rate Mortgage will be disclosed when you apply for your mortgage loan. And should your interest rate increase, you will be informed at least 25 days before any changes are made to your total monthly payment. As an additional benefit of the Section 251 program, if you ever consider refinancing your Adjustable Rate Mortgage you can easily streamline refinance to a Fixed Rate Mortgage at any time.

Aside from the adjustable rate aspect of the Section 251 loan it is very similar to a FHA insured single family loan. Because FHA insurance allows borrowers to finance up to 97 percent of the value of their home through their mortgage, down payments can be as little as 3 percent of the total value of the home.

FHA allows for many of the closing costs involved in purchasing a home to be financed and the same rules apply for an Adjustable Rate Mortgage loan. The Section 251 program also helps to reduce the initial expenses that are involved in purchasing a home by allowing you to finance many of these charges or roll them into the cost of the mortgage.

The costs you, as the potential homeowner, are responsible for are the down payment, appraisal and title search, any up front charges associated with your mortgage insurance premium? which may also be financed, and the subsequent monthly premiums that are added into your mortgage payment.

To better serve you, FHA has set rules in place that limit the amount lenders can charge in making a loan. We ensure that the loan origination fees charged by the lender do not exceed one percent of the amount of your mortgage minus the mortgage insurance premium, if it is being financed. As our goal is to best serve low and moderate-income people, we also set limits on the total dollar value of the mortgage loan. View the current established FHA loan limits. Please keep in mind that these figures vary over time and by place, depending on the cost of living and other factors. Higher mortgage limits also exist for two to four family properties.

APPLICATION

Any person who is able to meet the cash investment, credit requirements, and mortgage payment is eligible to apply however the program is limited to owner occupants.

ELIGIBILITY

All persons intending to occupy the property as their principal residence are eligible to apply. All FHA-approved lenders are qualified to make Adjustable Rate Mortgages and creditworthy applicants may qualify for such loans.

Fixed Rate FHA Loans

The Popular 203(b) Federally Guaranteed Mortgage

Home ownership rates in America continue to increase at a steady rate due in a large part to the implementation of FHA home loans more than seventy years ago. Over the years, FHA has helped Americans gain the financial independence that comes with owning a home. By creating jobs and reasonable mortgage rates for the middle class, financing military housing, and producing housing for the low income and the elderly, FHA has helped Americans become some of the best housed people in the world with over 73 million Americans currently owning their own homes.

HOW IT WORKS

By serving as an umbrella under which lenders have the confidence to extend loans to those who may not meet conventional loan requirements, FHA's mortgage insurance allows individuals to qualify who may have been previously denied for a home loan by conventional underwriting guidelines.

FHA loans benefit those who would like to purchase a home but haven't been able to put money away for the purchase, like recent college graduates, newlyweds, or people who are still trying to complete their education. It also allows individuals to qualify for a FHA loan whose credit has been marred by bankruptcy or foreclosure.

NUTS AND BOLTS

The most popular FHA home loan is the 203(b). This fixed-rate loan often works well for first time home buyers because it allows individuals to finance up to 97 percent of their home loan which helps to keep down payments and closing costs at a minimum. The 203(b) home loan is also the only loan in which 100 percent of the closing costs can be a gift from a relative, non-profit, or government agency.

Insurance on FHA mortgages are often rolled into the total monthly payment at 0.5 percent of the total loan amount which is roughly half of the price of mortgage insurance on a conventional loan. After five years or when the loan balance reaches 78 percent, the additional mortgage insurance is typically met and therefore drops off the total monthly payment.

GUIDELINES

It is not necessary to meet a minimum income requirement in order to qualify for a FHA loan but debt ratios specific to the state in which the home will be purchased have been put into place to prevent borrowers from getting into a home they cannot afford. This is done through a close analysis of income and monthly expenses.

Energy Efficient FHA Loans

Incorporate Your Energy Efficiency Improvements into an FHA Loan

The Energy Efficient Mortgage Loan program helps current or potential homeowners significantly lower their monthly utility bills by enabling them to incorporate the cost of adding energy efficient improvements into their new home or existing housing. This FHA program eliminates the need for homeowners who are interested in making their home more energy efficient to take out an additional mortgage loan to cover the cost of the improvements they intend to make to their property. The program is available as part of a FHA insured home purchase or by refinancing your current mortgage loan.

It is our government's goal to make energy efficiency and conservation a way of life. The FHA Energy Efficient Mortgage Loan program contributes to these efforts by providing better housing and creating a way for homeowners to make valuable improvements to their homes at a relatively low cost. The Joint Center for Housing Studies has reported that by considering the amount of monthly savings on utility bills when determining the amount of the mortgage, over 250 thousand more homeowners could feasibly qualify for a home loan.

HOW IT WORKS

Through this and other types of mortgage insurance programs, the lender helps low and moderate-income families purchase homes by keeping the initial costs down. By serving as an umbrella under which lenders have the confidence to extend loans to those who may not meet conventional loan requirements, FHA mortgage insurance allows individuals to qualify who may have been previously denied for a home loan by conventional underwriting guidelines. It also protects lenders against loan default on mortgages for properties that include manufactured homes, single-family and multifamily properties, and some health-related facilities.

AVAILABLE ASSISTANCE

The Energy Efficient Mortgage Loan program is one of many FHA programs that insures mortgage loans. Borrowers who qualify for FHA's popular Section 203(b) fixed-rate mortgage loan may finance up to 97 percent of their home loan. They are also able to fold their closing costs and the up-front mortgage insurance premium into the total cost of the loan. Energy Efficient Mortgages can also be used with FHA Section 203(k) rehabilitation program; in this case the Energy Efficient Mortgage generally follows the Section 203(k) rehabilitation program's financing guidelines.

ELIGIBLITY

The Energy Efficient Mortgage Loan program is available to anyone who meets the income requirements for FHA's Section 203(b) and is able to make the monthly mortgage payments. The cost involved in adding energy efficient features to the home and an estimate of the energy savings must be determined by a home energy rating system or a qualified energy consultant. Up to $200 of the cost of the energy inspection report may be included in the mortgage. Cooperative units are not eligible. Individual condominium units may be insured if they are not in projects that have been approved by FHA or the Department of Veterans Affairs, or they meet certain Fannie Mae guidelines.

ELIGIBLE ENERGY EFFICIENT ACTIVITIES

Energy Efficient Mortgages can be used to make energy-efficient improvements in one- or two-unit existing and new homes. The improvements can be included in a borrower's mortgage only if their total cost is less than the total dollar value of the energy that will be saved during their useful life. The cost of the improvements that may be eligible for financing as part of the mortgage is either 5 percent of the property's value (not to exceed $8,000) or $4,000, whichever is greater. View the current FHA loan limits.

FHA Graduated Payment Mortgages

FHA Home Loans for Purchasers with Rising Incomes

Graduated Payment Mortgages are FHA loans for homebuyers who currently have low to moderate incomes but expect them to increase substantially over the next 5 to 10 years. Through this FHA loan program, also referred to as Section 245, those who have limited incomes are able to purchase a home and make mortgage payments that will grow along with their earning potential.

Those who are considering using a Graduated Payment Mortgage to purchase a home should keep in mind that while their monthly payments to principal and interest will start small, they will increase substantially each year for up to ten years, depending upon the payment plan selected.

HOW IT WORKS

Through this and other types of FHA loan programs, the lender helps low and moderate-income families purchase homes by keeping the initial costs down. By serving as an umbrella under which lenders have the confidence to extend loans to those who may not meet conventional loan requirements, FHA mortgage insurance allows individuals to qualify who may have been previously denied for a home loan by conventional underwriting guidelines.
It also protects lenders against loan default on mortgages for properties that include manufactured homes, single-family and multifamily properties, and some health-related facilities. Through the Graduated Payment Mortgage program first time homebuyers and others with limited incomes can tailor their monthly mortgage payments to fit their expanding incomes therefore allowing them to purchase a home sooner than they would be able to through conventional financing programs.

AVAILABLE ASSISTANCE

Of the five FHA Graduated Payment Mortgage plans, three of them allow mortgage payments to increase at a rate of 2.5 percent, 5 percent, or 7.5 percent in the first 5 years of the loan. Through the other two plans, payments increase at a rate of 2 to 3 percent annually over 10 years.

Beginning in the sixth year of the 5 year plans and in the eleventh year of the 10 year plans, payments stay the same for the remaining years of the mortgage. FHA mortgages that start with a greater rate of increase over a longer period will have lower payments in the early years.
It is important that while considering this method of financing, homebuyers take the time to critically assess their potential for increased income to offset the rising mortgage payments. They also need to recognize that over the life of the mortgage, they will pay more in interest than they would have had they chosen a mortgage with payments that remained the same over the life of the loan.

ELIGIBILITY

Graduated Payment Mortgages are available to anyone who anticipates their earnings to increase substantially and intends to use the mortgaged property as their primary residence.

APPLICATION

Any person who is able to meet the credit requirements, cash investment, and mortgage payment is eligible to apply. However, this FHA loan program is limited to owner occupants.

FHA Growing Equity Mortgages

FHA Mortgages for Homeowners with Increasing Income

FHA Growing Equity Mortgages are home loans that are tailored for first time homebuyers or young families. These likely homebuyers are often not in a position that would warrant them being able meet the many upfront and monthly costs that are involved.

FHA's Section 245(a) enables those who currently have a limited income but expect their monthly earnings to increase, to purchase a home with the help of a Growing Equity Mortgage in which payments start small and increase gradually over time. As the mortgage payments grow the additional payment is applied toward the principal on the loan thus reducing the mortgage term. Growing Equity Mortgages also allow homeowners who are interested in further reducing the term of their mortgage to apply scheduled increases in their monthly payments to the outstanding principal balance.

HOW IT WORKS

Through this and other types of mortgage insurance programs, the lender helps low and moderate-income families purchase homes by keeping the initial costs down. By serving as an umbrella under which lenders have the confidence to extend loans to those who may not meet conventional loan requirements, FHA's mortgage insurance allows individuals to qualify who may have been previously denied for a home loan by conventional underwriting guidelines. It also protects lenders against loan default on mortgages for properties that include manufactured homes, single-family and multifamily properties, and some health-related facilities.

Through the Growing Equity Mortgage program first-time homebuyers and others with limited incomes can start out with a low monthly mortgage payment that will increase gradually over time therefore allowing them to purchase a home sooner than they would be able to through conventional financing programs.

AVAILABLE ASSISTANCE

Growing Equity Mortgages are eligible for insurance under Section 203(b) for one to four family homes; Section 203(k) for home purchase, refinancing, or rehabilitation; Section 203(n) for shares in cooperative housing; and Section 234(c) for units in condominiums. Growing Equity Mortgages must meet the requirements of the section under which they are insured but certain exceptions are available.

Each of the five Growing Equity Mortgage plans provides for monthly payments to be increased by a fixed percentage during each year of the loan. The initial year's payments to principal and interest are based on a 30 year level payment schedule. Thereafter the amount of the monthly payments for the next 12 months will increase each year by between 1 and 5 percent depending on the plan selected. The actual term of the mortgage will not exceed 22 years and may be less depending on the specific Growing Equity Mortgage plan and interest rate selected.

APPLICATION

Most lenders who use this mortgage insurance product make their requests through a provision known as "direct endorsement," which authorizes them to consider applications without submitting paperwork to HUD.

ELIGIBILITY

Growing Equity Mortgages are available to anyone who anticipates their earnings to increase appreciably and intends to use the mortgaged property as their primary residence.

Call 1-866-562-6318 and speak with a loan counselor to get qualified for a new loan.

Important Facts About the FHA Loan Process

The FHA, or Federal Housing Administration, provides mortgage insurance on loans made by FHA-approved lenders. FHA insures these loans on single family and multi-family homes in the United States and its territories. It is the largest insurer of residential mortgages in the world, insuring tens of millions of properties since 1934 when it was created.

FHA MORTGAGE INSURANCE

FHA insured loans require mortgage insurance to protect lenders against losses that result from defaults on home mortgages.

Mortgage insurance is a policy that protects lenders against losses that result from defaults on home mortgages. FHA loans require mortgage insurance primarily for borrowers making a down payment of less than 20 percent.

Mortgage insurance is charged to the homeowner each month at the rate of .5 percent per year of the total loan amount. FHA also charges an upfront mortgage insurance premium of 1.5 percent.

FHA's monthly mortgage insurance payments will be automatically terminated when these conditions occur:

• For mortgages with terms 15 years and less and with Loan to Value ratios 90 percent and greater, annual premiums will be canceled when the Loan to Value ratio reaches 78 percent regardless of the amount of time the mortgagor has paid the premiums.
• For mortgages with terms more than 15 years, the annual mortgage insurance premiums will be canceled when the Loan to Value ratio reaches 78 percent, provided the mortgagor has paid the annual premium for at least 5 years.
• Mortgages with terms 15 years and less and with loan to value ratios of 89.99 percent and less will not be charged annual mortgage insurance premiums

FHA LOAN LIMITS

FHA lending limits vary based on a variety of housing types and the state and county in which the property is located. Call 1-866-562-6318 and we can help research your area limits.

LOAN CHECKLIST

Before you start the loan process, you'll want to be prepared for the loan application. Have your information organized and ready for your loan officer. Be prepared to pay for property appraisal and a credit report.

Before you start the FHA loan process, be prepared to provide some information to your loan officer. Have it ready now to save time later.

• Address to your place of residence (past two years)
• Social Security numbers
• Names and location of your employers (past two years)
• Gross monthly salary at your current job(s)
• Pertinent information for all checking and savings accounts
• Pertinent information for all open loans
• Complete information for other real estate you own
• Approximate value of all personal property
• Certificate of Eligibility and DD-214 (for veterans only)
• Current check stubs and your W-2 forms (past two years)
• Personal tax returns (past two years), current income statement and business balance sheet for self-employed individuals

In addition, you will need to pay for a credit report and appraisal of the property.

CLOSING COSTS

While FHA defines which closing costs are allowable as charges to the borrower, the specific costs and amounts that are deemed reasonable and customary are determined by each local FHA office.

While FHA defines which closing costs are allowable as charges to the borrower, the specific costs and amounts that are deemed reasonable and customary are determined by each local FHA office. All other costs are generally not allowed and are usually paid by the seller when buying a new home, or paid by the lender when refinancing your exising FHA loan.

• Lender's origination fee
• Deposit verification fees
• Attorney's fees
• The appraisal fee and any inspection fees
• Lender's origination fee
• Cost of title insurance and title examination
• Document preparation (by a third party)
• Property survey
• Credit reports (actual costs)
• Transfer stamps, recording fees, and taxes
• Test and certification fees
• Home inspection fees up to $200

Allowed in an FHA refinance loan are wire transfer fees, courier fees, reconveyance fees, and fees to payoff bills.

FHA DEBT RATIOS

In order to prevent homebuyers from getting into a home they cannot afford, FHA guidelines have been set in place requiring borrowers and/or their spouse to qualify according to set debt to income ratios.

In order to prevent homebuyers from getting into a home they cannot afford, FHA guidelines have been set in place requiring borrowers and/or their spouse to qualify according to set debt to income ratios. These ratios are used to calculate whether or not the potential borrower is in a financial position that would allow them to meet the demands that are often included in owning a home. The two ratios are as follows:

1) MORTGAGE PAYMENT
EXPENSE TO EFFECTIVE INCOME

Add up the total mortgage payment (principal and interest, escrow deposits for taxes, hazard insurance, mortgage insurance premium, homeowners' dues, etc.). Then, take that amount and divide it by the gross monthly income. The maximum ratio to qualify is 29%.
See the following example:

FHA CREDIT

An FHA loan applicant's past credit performance that demonstrates good credit history and a solid track record of timely payments will likely be eligible for the mortgage.
Before approving a loan, the lender analyzes the integrity of the borrower's past credit performance. Those who have a good credit history demonstrated by a solid track record of timely payments will likely be eligible for a loan. Potential borrower's whose credit history is marred by slow payments, poor financial judgment and delinquent accounts is not a good candidate for loan approval.
The following is a list of items concerning the borrower's credit:

NO CREDIT HISTORY

Two lines of credit are necessary to apply for an FHA loan. However, in the event a borrower does not have sufficient credit on their credit report the FHA will allow substitute forms.

CHAPTER 13 BANKRUPTCY

FHA will consider appoving a borrower who is still paying on a Chapter 13 Bankruptcy if those payments have been satisfactorily made and verified for a period of one year. The court trustee's written approval will also be needed in order to proceed with the loan. The borrower will have to give a full explanation of the bankruptcy with the loan application and must also have re-established good credit, qualify financially and have good job stability.

CHAPTER 7 BANKRUPTCY

At least two years must have elapsed since the discharge date of the borrower and / or spouse's Chapter 7 Bankruptcy, according to FHA guidelines. This is not to be confused with the bankruptcy filing date. A full explanation will be required with the loan application. In order to qualify for an FHA loan, the borrower must qualify financially, have re-established good credit, and have a stable job.

LATE PAYMENTS

During an underwriter analysis of borrower credit, the overall pattern of credit behavior is being reviewed rather than isolated cases of slow payments. If a good payment pattern has been maintained, regardless of a specific perod of financial difficulty preceded it, the borrower may escape disqualification.

FORECLOSURE

FHA insured mortgages are generally not available to borrowers whose property was foreclosed on or given a deed-in-lieu of foreclosure within the previous three years. However, if the foreclosure of the borrower's main residence was the result of extenuating circumstances, an exception may be granted if they have since established good credit. This does not include the inability to sell a home when transferring from one area to another.

COLLECTIONS, JUDGEMENTS AND FEDERAL DEBTS

A collection is minor in nature usually does not need to be paid off as a condition for loan approval. It is stated as such in FHA guidelines. Any judgments will have to be paid in full prior to closing. Borrowers who are delinquent on any federal debt, such as tax liens, student loans, etc., are not eligible.

FHA Loan for Homeowners

Take the Steps to Get Your Mortgage

Purchasing a home is one of life's major landmarks and for some, it is even a dream come true. At FHA.com we understand the magnitude of this decision and it is our goal to make your transition into home ownership unforgettable. Regardless of whether this is your first or your fifth home purchase we will do our best to ensure that getting you into your new home is a pleasant and memorable experience.

FIRST STEPS

When you begin to seriously consider purchasing a new home it is important that you follow some simple steps to make sure that the process runs smoothly.

The first thing you should do is an analysis of your debt to income ratio. This important step will let you know what type of home you can afford based on your monthly income and expenses.

The next important step in purchasing a new home is to get pre-approved for a home loan. The peace of mind that comes with knowing that your mortgage loan and credit report have been approved will allow you to shop for your new home with confidence. And when you find a home and are ready to make an offer the fact that you have already been pre-approved for your loan amount will give the seller confidence in you as a buyer.

Buying your home?
FHA might be just what you need. Your down payment can be as low as 3.5% of the purchase price, and most of your closing costs and fees can be included in the loan. Available on 1-4 unit properties.

What is the purpose of this program?
To provide mortgage insurance for a person to purchase or refinance a principal residence. The mortgage loan is funded by a lending institution, such as a mortgage company, bank, savings and loan association and the mortgage is insured by HUD.

What are the eligibility requirements?

• The borrower must meet standard FHA credit qualifications.
• The borrower is eligible for approximately 97% financing. The borrower is able to finance the upfront mortgage insurance premium into the mortgage. The borrower will also be responsible for paying an annual premium.
• Eligible properties are one-to-four unit structures.
• To learn more about the mortgage limits in your area, go here.

For More Information

Contact Residential Lending your HUD approved lender at 1-866-562-6318.

FHA Refinancing

Subprime woes and ARM resets have many homeowners searching for a solution to help pay their monthly mortgage bills. Look no further - a FHA Refinance is the most popular option on the market today.

With the FHA, you can:

• Refinance Your Mortgage into a More Reasonable Monthly Payment
• Refinance Your Current Loan to help Avoid Foreclosure.
• Take Cash Out of Your Home's Equity for Home Improvements
• So contact us for an FHA Refinance today!

Some of the benefits you will enjoy include a low down payment, relaxed qualification standards, and you may qualify for a lower rate. We do not even need your social security number to get the process started so contact one of our qualified FHA Loan Specialists who will answer all your questions and walk you through refinancing your home with a FHA Loan step-by-step.

Enjoy the benefits of a FHA Refinance

To best find out how you can take advantage of the benefits of a FHA Refinance, connect with a specialist online. They can provide a one-on-one solution to best fit your needs.

The FHA guarantees your loan through approved FHA lenders, which not only makes it easier to qualify for a home loan, it can also save you money each month. A guaranteed loan is a win-win situation for both parties, and it can lead to a lower interest rate for the borrow and less risk for the lender. The best way to start the FHA Loan process is by answering a few simple questions so we can connect you with an FHA Specialist today!

You do not have to have perfect credit to refinance with a FHA Loan. The FHA requires certain standards order to offer you a loan guarantee, but the lender is still guaranteed their money in case of foreclosure, so they are more likely to fund the loan even if the borrower's credit is not ideal. Since each situation is unique, let a FHA specialist prepare a personal analysis for you.

You can have no down payment or a very low down payment, and still get a mortgage loan. Most traditional lenders require a minimum down payment, which preferably is around 20% of the purchase price of the home. FHA Loans only require 3%, and this required portion can be a gift to you. Many lenders don't allow gifted funds to be used for down payments on a mortgage loan, but a FHA Loan would allow you to do so. This means that you can borrow the down payment from a friend or relative, or use a down payment gift program, like AmeriDream, that will give you the money for a free down payment on your home. If you are refinancing, you would be able to take more cash out from your home, or refinance sooner, even if you have a very small amount of equity built up in your home.

You may get a much lower interest rate on your refinance mortgage. FHA Loans can offer much better loan terms than traditional mortgage loans because the loans are guaranteed by the federal government, so there is almost no risk involved. Because of the guarantee, lenders are more secure with the loan, and can offer lower long-term fixed interest rates and fewer points. Because each situation is unique, we do not post rates on this site. To see what rate you can qualify for, connect with a specialist for a personalized analysis.

Additional FHA Refinance Information

These are just some of the many benefits you would receive if you refinance your home with a FHA Loan. 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. Call 1-866-562-6318 to speak with a loan counselor today.

FHA Refinance and Mortgage Fact #1

About the FHA

The Federal Housing Administration (FHA), an agency of the federal government, insures private loans that are issued for new and existing housing, and loans that are approved for home repairs. Created by congress in 1934, the FHA became part of the Department of Housing and Urban Development's Office of Housing (HUD) in 1965. Today the mission of the FHA includes helping borrowers get amounts they qualify for, and assisting lenders by reducing their risk in issuing loans. To find out if you might be eligible for an FHA-insured loan, contact us.

FHA Refinance and Mortgage Fact #2

Credit Problems and a HUD Housing Loan

It is advisable to approach any FHA loan with your best possible credit rating. If you have had credit problems in the past, the FHA recommends a Consumer Credit Counseling program to avoid being denied an FHA loan. A good credit counselor can talk to you about income-to-debt ratio, maintaining satisfactory payments and challenging errors on your credit report. The FHA recommends creating a satisfactory payment history for at least one year before applying for any FHA loan program.

FHA Refinance and Mortgage Fact #3

The FHA TOTAL Scorecard

If you submit FHA paperwork electronically, the FHA TOTAL Scorecard is used to measure the credit risk of all FHA loans submitted through the automatic underwriting system. Your FHA loan is processed through a qualified and approved FHA lender. Applications submitted through FHA TOTAL are evaluated by a standardized scoring procedure creating a quick, fair and seamless evaluation. The FHA's TOTAL system is internet based and works in real time.

FHA Refinance and Mortgage Fact #4

Applying for an FHA Loan

The FHA asks for a lot of information on your FHA loan application. You will need to provide the FHA with a wide range of details including:

1. All addresses where you have lived in the previous two years.
2. Your employer's name and addresses for the last two years, plus the amount of your Gross Monthly Salary.
3. W2s for the past two years.
4. Income tax forms submitted for the last two years.

Gather all of this before you begin your FHA application so you will have everything handy to complete your FHA loan forms at one time.

FHA Refinance and Mortgage Fact #4

Applying for an FHA Loan

The FHA asks for a lot of information on your FHA loan application. You will need to provide the FHA with a wide range of details including:

1. All addresses where you have lived in the previous two years.
2. Your employer's name and addresses for the last two years, plus the amount of your Gross Monthly Salary.
3. W2s for the past two years.
4. Income tax forms submitted for the last two years.

Gather all of this before you begin your FHA application so you will have everything handy to complete your FHA loan forms at one time.

FHA Refinance and Mortgage Fact #5

Additional Paperwork for Veterans
The FHA asks that veterans submit the DD Form 214 along with their FHA loan application paperwork. The DD Form 214 is the official record of discharge from the Armed Forces. If you have recently separated, retired or otherwise left active duty and don't have your DD Form 214, request a copy from either your final outprocessing base (call the orderly room, records office or outbound assignments/outprocessing office), or request the form electronically from the Department of Defense.

FHA Refinance and Mortgage Fact #6

FHA/HUD Insured Mortgages and Refunds

If you have an FHA loan or HUD insured mortgage, you may have paid an "up-front" mortgage insurance premium at the closing of your house. Assuming you did not default on your mortgage payments, you may be eligible for a refund on part of your insurance premium. Loans granted after September 1, 1983 may be entitled to this refund. Check your FHA loan settlement paperwork or phone your lender to learn more. If you need further assistance, contact your FHA loan officer for help.

FHA Refinance and Mortgage Fact #7

Popular FHA Loans

The 203(b) FHA Fixed Rate Mortgage Loan Program is the widely used FHA home loan, especially among first time home buyers. The 203(b) FHA loan keeps your down payment to a minimum. Your closing costs may also be reduced. The 203(b) FHA loan will finance up to ninety-seven percent of your loan. You must qualify with some debt-to-income ratios, but the 203(b) does not have a minimum income requirement. Check with a financial planner about your debt to income ratio, or discuss your financial status with a lender. Find out how to maximize your credit rating before you apply for your FHA loan.

FHA Refinance and Mortgage Fact #8

Where FHA Mortgages Come From

FHA loans do not come directly from the FHA. The FHA guarantees home loans, reducing the risk to lenders and offering increased borrowing power to qualified applicants. You may bet better interest rates thanks to FHA home loan insurance. FHA loans are particularly helpful for who want a home, but have little or no money saved for a down payment; including those just graduating college, newly married couples, and also those who have had credit problems in the past because of foreclosure or bankruptcy. Check out your credit rating and get a list of lending limits for FHA loans in your area which vary from state to state, and may even vary by county.

FHA Refinance and Mortgage Fact #9

Pre-qualify for an FHA Home Loan

To pre-qualify for an FHA loan, you should be able to demonstrate employability, job stability and reliability. To the FHA, reliability includes holding a steady job for at least two years with the same company or employer and increasing or at least maintaining consistent income. The FHA would like to see that any foreclosures or bankruptcies on your record are at least three years old. The FHA loan bottom line: demonstrate that you have been a good credit risk for two years or more and you will have a much better chance at pre-qualifying for an FHA loan.

FHA Refinance and Mortgage Fact #10

The Increased FHA Loan Amount

In early 2006, a HUD press release announced an increase of nearly thirty thousand dollars in FHA-insured home loan money being made available to borrowers for single-family home mortgages. This increase signals more borrowing power with your FHA home loan, and it allows more people than ever the opportunity to own a home. With only a three-percent down payment and a single-family home mortgage limits coming closer to two hundred thousand dollars, now may be the best time to apply for an FHA home loan. First, evaluate your finances; your monthly housing costs should not exceed more than 29% of your gross monthly income. Use gross income, not net income, when evaluating your finances to apply for your FHA loan.

FHA Refinance and Mortgage Fact #11

FHA Mortgage Fees

"Reasonable and customary" mortgage loan fees can include appraisals, inspections, credit reports, document preparation fees and more. Ask your lender for a list of known fees due with your type of FHA-insured home loan, FHA streamline refinance or other FHA transaction. Have a list of the fees you are expected to pay, when they are due, and determine how they affects the bottom line of your loan.

FHA Refinance and Mortgage Fact #12

Additional FHA Fees

Some of these include courier fees, wire fees, real estate broker fees, recording fees and recording taxes. Depending on your FHA loan, you may be eligible to get state or local assistance for some or all costs related to home buying. Ask your lender what programs are available to you in your state for additional financing, grants or 'forgivable' loans. There can be a great deal of financial help at your local level when seeking an FHA mortgage.

FHA Refinance and Mortgage Fact #13

Fees Prohibited by HUD

Your FHA mortgage is designed to get you into a home for a fair price; you should not pay above and beyond the normal fees associated with buying a home. Certain payments, fees and other charges are illegal. If you are seeking an FHA loan, do not pay any 'unearned fees'. FHA guidelines as well as federal, state and local laws offer regulation against these kinds of illegal fees. If you feel you are being asked to pay a prohibited fee, check with the FHA, contact a housing counselor immediately, or consult a lawyer with expertise in home lending.

FHA Refinance and Mortgage Fact #14

FHA Loan Mistakes to Avoid

One major mistake potential homebuyers can make when applying for an FHA home loan is to make a major credit purchase. Don't cloud your debt-to-income ratio with a big purchase before applying for your FHA insured home loan. Your debt-to-income calculation is based on your current debts and the percentage of that debt against your income. Major credit purchases will seriously alter that ratio, sometimes enough to weigh against you for your FHA loan. If you can afford to pay off any outstanding loans such as auto loans before applying for your FHA loan, that can be a good decision. Don't put yourself at a financial isadvantage to do so but if you are able, eliminating debt will help when you apply for your FHA loan. Consult a financial planner or ask your lender for advice.

FHA Refinance and Mortgage Fact #15

Improving Your Credit Score

Your FHA loan approval depends on your good credit.

• If you have a poor credit rating, work to establish payment reliability over a period of at least one year before starting your FHA loan paperwork.
• Try paying down and closing one or two credit cards, which can improve your credit rating by showing you have less potential debt open to you through credit cards.
• If you have erroneous items on your credit rating, challenge them in writing with the major credit reporting agencies and resolve them before you begin work on the FHA mortgage.

FHA Refinance and Mortgage Fact #16

FHA Mortgage Insurance

FHA mortgage insurance protects lenders in case of a default by the borrower of the FHA loan. An FHA mortgage helps reduces the cash needed to purchase a home. The FHA is funded solely from the income it creates: from the revenue generated by FHA mortgage insurance. This FHA mortgage insurance cost is borne by the homebuyer, but it ends approximately five years later or when the FHA mortgage balance is seventy-eight percent of the property value, whichever occurs last.

FHA mortgages have flexible payment schedules and more inclusive definitions of monthly income, allowing more borrowers to thus qualify for an FHA loan. Ask your lender to do a side-by-side comparison between the FHA mortgage and the current non-FHA versions. It will soon become apparent which is the best value for your money, especially if you don't have a lot to invest in a down payment.

FHA Refinance and Mortgage Fact #17

Streamline a HUD Loan

Streamlining your FHA mortgage is particular kind of FHA loan refinancing plan. To qualify, your FHA mortgage must meet certain requirements:

• Your FHA mortgage must not be delinquent.
• Your FHA mortgage must also be currently insured by the FHA.
• Your FHA Streamline Refinance must lower your payments and monthly principal.

Streamlining refers to a reduction in the amount of paperwork needed to accomplish the refinancing. Some lenders advertise "no cost" FHA mortgage streamlining, but you will incur a higher interest rate than if you paid the closing costs up front.

FHA Refinance and Mortgage Fact #18

Active Duty Military and the FHA Loan

The Service Members Civil Relief Act passed in the 1940s allows active military people to qualify for an interest rate reduction to a maximum of six percent per year during active duty service. This applies both to commercial FHA mortgages. You must actively request this reduced rate and you may also be required to renew your request at periodic intervals as stated in the Civil Relief Act.

FHA Refinance and Mortgage Fact #19

Falling Behind on FHA Loan Payments

In most circumstances, falling behind on your FHA mortgage requires quick action. Never ignore it. Always act immediately to avoid foreclosure. A housing counselor can support you and show you how to maintain your FHA loan payments.

Under certain special circumstances, your FHA mortgage may be protected from foreclosure for ninety days after the payment due date. These special circumstances include a reduction or loss of income from natural disasters and other events if your home is in an area declared by the President as a natural disaster area.

Those who are current on their FHA mortgage payments should continue to pay if possible. But if your income was reduced because of an injury related to the natural disaster, contact your FHA loan officer right away. You may have more support than you realize with your FHA loan.

FHA Refinance and Mortgage Fact #20

FHA Insurance Fund

Some FHA mortgage holders may qualify for help in the form of a one-time payment from the FHA insurance fund, to help bring your FHA mortgage up to date. Requirements to qualify for this FHA support include a mortgage loan that is at least 4 months, but no more than one-year delinquent, and you can are able to begin making full payments once again.

You will need to sign a Promissory Note and have a Lien on your home until the Promissory Note is fully paid off. Remember that this is a one-time only FHA offer. Protect your credit rating for future FHA loans, FHA mortgages or FHA refinancing packages by maintaining good credit.

FHA Refinance and Mortgage Fact #21

FHA Connection
The FHA Connection is an online system that allows authorized lenders and FHA business partners to access FHA computer systems to originate loans. FHA Connection is a very important tool in the FHA loan process and there is no charge to use the service, only the username and password requirements. Using FHA Connection, lenders can begin a new FHA loan, update existing FHA loan applications in the system, and complete FHA loan insurance applications. These are just a few of the many functions available.

FHA Refinance and Mortgage Fact #22

FHA Connection Neighborhood Watch

The FHA Connection Neighborhood Watch allows authorized users to monitor FHA mortgage delinquency patterns in a geographic area, by lender or by loan details. FHA loans that go delinquent after ninety days within the first three years are trackable. FHA Connection Neighborhood watch lets authorized users generate reports that identify problems and unusual patterns of behavior in FHA insured single-family loans. This can help identify existing as well as potential problems with FHA loans.

FHA Refinance and Mortgage Fact #23

FHA Adjustable Rate Mortgage

The FHA Adjustable Rate Mortgage (ARM) offers a flexible interest rate and requires you to be more informed. When shopping for an FHA home, the FHA adjustable rate loan for your FHA home means you should do some homework about the index, which is the measurement of how the interest rate changes. Your lender uses this index to determine interest rate flexibility.

Ask your lender to explain the index in detail and how it works. With the adjustable rate mortgage on your FHA home, you can't predict when or how much the interest rate may change. Ask how much the index for your potential adjustable rate FHA home mortgage has changed recently, and where the information is reported.

FHA Refinance and Mortgage Fact #24

How Mortgage Limits are Set

The FHA does set limits on FHA mortgage loans, and these lending limits may differ by county and state. FHA mortgage loan limits are based upon the Fannie Mae/Freddie Mac limits on conventional mortgage loans. They are also set according to type of home-single family, plus two, three and four family dwellings. If you find that FHA mortgage loan limits in a nearby county are more lenient, you may wish to consider buying a home in the area with the higher limit. If you live on the edge of two counties, find out which one offers the best FHA loan limits before making your home purchase.

FHA Refinance and Mortgage Fact #25

FHA Loan Limit

In high-cost areas, the FHA loan limit can be as high as a little over two hundred and ninety thousand dollars. In low-cost areas, the FHA loan limit can be around a little over one hundred and sixty thousand dollars. FHA loan limits can change based on factors including average area home prices. FHA loan limits also increase with the number of units. A multi-unit home will qualify for a higher rate, but those FHA loan limits are subject to the same factors as single unit homes.

FHA Refinance and Mortgage Fact #26

FHA Loan Options

FHA home mortgages can include FHA loans for a 'fixer-upper" home. The FHA loan for fixer-upper property combines the purchase price of the house and the cost of repairs. There are also FHA loans available for qualified borrowers over the age of sixty-two, to convert a portion of the equity in a home into cash.

There are FHA loans available for mobile homes and manufactured homes. In addition to the other types of FHA loan guidelines that pertain to specific types of purchases, there is also the FHA Energy Efficient Mortgage, also known as EEM, providing mortgage insurance to buy or refinance a residence and include the cost of energy-saving upgrades.

For an FHA Energy Efficient Mortgage, the borrower isn't required to qualify for the extra money needed to include the energy upgrades, and there is no down payment required for the extra amount. Anyone concerned about the environment, saving money or just getting the most efficient home they can afford should seriously consider the FHA EEM.

FHA Refinance and Mortgage Fact #27

Energy Efficient HUD Mortgage

The FHA EEM allows you to borrow additional money to incorporate energy saving features into your new home. To qualify for the FHA EEM, you'll need to meet some FHA loan guidelines. These include being eligible for the maximum FHA-insured financing available. Your energy improvements must be cost effective, meaning according to FHA guidelines, the cost of the improvements must be less than the total value of the energy savings over the life of the energy-saving equipment or materials. An FHA EEM loan may take some extra homework on your part, but the savings could be well worth the effort.

Want to make your home more energy efficient?

You can include the costs of energy improvements into an FHA Energy-Efficient Mortgage.

Energy Efficiency Mortgages

Welcome to FHA's home page for FHA-insured Energy Efficient Mortgages (EEM). The following links should help you learn about how to make your home more energy efficient:

Energy Efficient Mortgage Program

FHA's Energy Efficient Mortgage program (EEM) helps homebuyers or homeowners save money on utility bills by enabling them to finance the cost of adding energy efficiency features to new or existing housing as part of their FHA insured home purchase or refinancing mortgage.

Purpose
In 1992, Congress mandated a pilot demonstration of Energy Efficient Mortgages (EEMs) in five states. In 1995, the pilot was expanded as a national program.

EEMs recognize that reduced utility expenses can permit a homeowner to pay a higher mortgage to cover the cost of the energy improvements on top of the approved mortgage. FHA EEMs provide mortgage insurance for a person to purchase or refinance a principal residence and incorporate the cost of energy efficient improvements into the mortgage. The borrower does not have to qualify for the additional money and does not make a downpayment on it. The mortgage loan is funded by a lending institution, such as a mortgage company, bank, or savings and loan association, and the mortgage is insured by HUD. FHA insures loans. FHA does not provide loans.

Type of Mortgage:
EEM is one of many FHA programs that insure mortgage loans--and thus encourage lenders 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). Borrowers who obtain FHA's popular Section 203(b) Mortgage Insurance for one to four family homes are eligible for approximately 96.5 percent financing, and are able to fold closing costs and the upfront mortgage insurance premium into the mortgage. The borrower must also pay an annual premium.

EEM can also be used with the FHA Section 203(k) rehabilitation program and generally follows that program's financing guidelines. For energy efficient 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.

How to Get a EEM:
To apply for an FHA insured energy efficient mortgage, contact an FHA approved lender.

Eligible Customers:
All persons who meet the income requirements for FHA's standard Section 203(b) insurance and can make the monthly mortgage payments are eligible to apply. The cost of the energy improvements and estimate of the energy savings must be determined by a home energy rating system (HERS) or an energy consultant. The cost of an energy inspection report and related fees may be included in the mortgage. Cooperative units are not eligible.

EEM can also be used with FHA's Section 203(h) program for mortgages made to victims of presidentially declared disasters. The mortgage must comply with both Section 203(h) requirements, as well as those for EEM. However, the program is limited to one unit detached houses.

Eligible Activities:
EEM can be used to make energy efficient improvements in one to four existing and new homes. The improvements can be included in a borrower's mortgage only if their total cost is less than the total dollar value of the energy that will be saved during their useful life. Other eligibility requirements may be found in the Homeowner's Guide.

Eligibility Requirements

• The borrower is eligible for a maximum FHA insured loan, using standard underwriting procedures. The borrower must make a 3.5 percent downpayment. This 3.5 percent downpayment is based on the sales price or appraised value. Any upfront mortgage insurance premium can be financed as part of the mortgage.
  
  
• Eligible properties are one to four unit existing and new construction. EEMs may be added to some other loan types, including streamline refinances.
  
  
• The cost of the energy efficient improvements that may be eligible for financing into the mortgage is the lesser of A or B as follows:
  A. The dollar amount of cost-effective energy improvements, plus cost of report and inspections, or
  B. The lesser of 5% of:
  • The value of the property, or
  • 115% of the median area price of a single family dwelling, or
  • 150% of the conforming Freddie Mac limit.
    
    
• To be eligible for inclusion in the mortgage, the energy efficient improvements must be cost effective, meaning that the total cost of the improvements is less than the total present value of the energy saved over the useful life of the energy improvement.
  
  
• The cost of the energy improvements and estimate of the energy savings must be determined by a home energy rating report that is prepared by an energy consultant using a Home Energy Rating System (HERS). The cost of the energy rating report and inspections may be financed as part of the cost effective energy package.
  
  
• The energy improvements are installed after the loan closes. The lender will place the money in an escrow account. The money will be released to the borrower after an inspection verifies that the improvements are installed and the energy savings will be achieved.
  
  
• The maximum mortgage limit for a single family unit depends on its location, and it is adjusted annually. To find FHA maximum mortgage limits for any county in the country. The cost of the eligible energy efficient improvements is added to the mortgage amount. The final loan amount can exceed the maximum mortgage limit by the amount of the energy efficient improvements.

Technical Guidance:
EEM is authorized under Section 513 of the Housing and Community Development Act of 1992. Program regulations are listed on the EEM mortgagee letter web page.

Energy Efficient Mortgage
Home Owner Guide

THE ENERGY EFFICIENT MORTGAGE means comfort and savings. When you are buying, selling, refinancing, or remodeling your home, you can increase your comfort and actually save money by using the Energy Efficient Mortgage (EEM). It is easy to use, federally recognized, and can be applied to most home mortgages. EEMs provide the borrower with special benefits when purchasing a home that is energy efficient, or can be made efficient through the installation of energy-saving improvements.

Home owners with lower utility bills have more money in their pocket each month. They can afford to allocate a larger portion of their income to housing expenses. If you have more cash, why not buy a better, more comfortable home? There are two options with the Energy Efficient Mortgage.

The TWO SIDES of the EEM COIN

Finance Energy Improvements!

• Cost-effective energy-saving measures may be financed as part of the mortgage!
  
• Make an older, less efficient home more comfortable and affordable!

Increase Your Buying Power!

• Stretch debt-to-income qualifying ratios on loans for energy-efficient homes!
• Qualify for a larger loan amount! Buy a better, more energy efficient home!

WHO BENEFITS from the ENERGY EFFICIENT MORTGAGE?

Buyers:

• Qualify for a larger loan on a better home!
  
• Get a more comfortable home NOW.
  
• Save money every month from Day One.
  
• Increase the potential resale value of your home.
  

Sellers:

• Sell your home more quickly.
  
• Make your house affordable to more people.
  
• Attract attention in a competitive market.
  

Remodelers/Refinancers:

• Get all the EEM benefits without moving.
• Make improvements which will actually save you money.
• Increase the potential resale value of your home.
  

Pay for energy improvements easily, through your mortgage. Your lender can increase your loan to cover energy improvement costs. Monthly mortgage payments increase slightly, but you actually save money because your energy bills will be lower!

HERS, or Home Energy Rating Systems

A HERS report is similar to a miles-per-gallon rating on a car. HERS are programs which provide evaluations of an individual home's energy-efficiency. A HERS report is prepared by a trained Energy Rater. Factors such as insulation, appliance efficiencies, window types, local climate, and utility rates are used to rate the home and calculate energy costs.

A HERS Report Includes:

• Overall Rating Index of the house as it is.
• Recommended cost-effective energy upgrades.
• Estimates of the cost, annual savings, and useful life of upgrades.
• Improved Rating Index after the installation of recommended upgrades.
• Estimated annual total energy cost for the existing home before and after upgrades.

A Rating Index is between 1 and 100. A lower index indicates greater efficiency. Cost-effective upgrades are those which will save more money through energy savings than they cost to install.

A HERS rating usually costs between $300 and $800. This could be paid for by the buyer, seller, lender, or real estate agent. Sometimes the cost of the rating may be financed as part of the mortgage. No matter how the rating is paid for, it is a very good investment because an EEM could save you or your buyer hundreds of dollars each year.

THIS IS WHY the EEM WORKS

Energy-efficient homes cost less to own than non-efficient homes, though they may start off with higher price tags.

Estimated mortgage payments are based upon principle and interest only, and do not include taxes and insurance. Value indicated here is for comparison only, and will vary from home to home.

Many homes qualify for energy upgrades. This home qualified for $4,816 in upgrades. With the EEM, lenders recognize the savings the upgrades will bring. Borrowers may use these potential savings like extra cash, and add the cost of upgrades into the mortgage, paying them off easily as part of the monthly mortgage payment. Once the upgrades are installed the potential savings turn into real savings.

Another EEM option is for the lender to allow higher qualifying ratios for borrowers who will occupy a property meeting certain standards for energy efficiency. When the home has been built or retrofitted in conformance with the International Energy Conservation Code (IECC) standards for 2000 or later, then the lender may "stretch" the borrower's qualifying ratios. A debt-to-income ratio "stretch" means that a larger percentage of the borrower's monthly income can be applied to the monthly mortgage payment. That means the buyer has more borrowing power based up on the same income.

WHAT the EEM DOES for a BUYER'S BORROWING POWER

For a standard home without energy improvements:

Added borrowing power due to the Energy Efficient Mortgage: $28,600

*Interest rate 7.5%, downpayment of 10%, 30-year term, principal & interest only (tax & insurance not factored.)

In other words:
This buyer got into a home worth thousands of dollars more, just because it was energy efficient. That could mean a home with more space, in a better location, or in better overall condition.

FHA's Energy Efficient Mortgage Program

The FHA Energy Efficient Mortgage covers upgrades for new and existing homes and is now available in all 50 states. Key features includes:

• Loan limits may be exceeded
  
• No re-qualifying
  
• No additional down payment
  
• No new appraisal
  

The FHA 203(k) loan enables a home buyer or investor to obtain a single loan to finance both property acquisition and to complete major improvements after loan closing and can be combined with FHA's EEM.

CASE STUDY:

Customer Quote: "The EEM was the second best thing that ever happened to me. The first best was actually being able to buy a home. This is our first home, and the EEM saved us a lot of headaches because we knew what we needed to do to the house. It's nice and comfortable now. Even my dogs are happy. I am very impressed."
-Pat Theard

First-time home buyers Patricia and Mynette Theard purchased their home in California. It was built in 1940, and sold for $150,000. They got an FHA loan for 95% of the value of the property. The lender saw an opportunity for them to improve on their investment and recommended an Energy Efficient Mortgage.

A HERS Rating on the home recommended $2,300 in energy improvements including ceiling, floor and furnace duct insulation, plus a setback thermostat. The lender set aside an extra $2,300 for the improvements, bringing the total loan amount from $142,500 to $144,800. The loan closed, the Theards moved in, and the improvements were installed. The monthly mortgage payment increased by $17, but the Theards are saving $45 each month through lower utility bills.

Ask your lender about an Energy Efficient Mortgage. If they are not knowledgeable about the EEM, encourage them to learn about it, or find another lender.

WHICH BUYERS and HOMES ARE ELIGIBLE?
All buyers who qualify for a home loan qualify for the EEM. The EEM is intended to give the buyer additional benefits on top of their usual mortgage deal. The lender will use the energy efficiency of the house, as determined by a HERS rating, to determine what these benefits will be.

Energy Efficient Mortgages can be used on most homes. Availability is not limited by location, home price or utility company. Your lender will help you choose which loan type is best for you.

Get an EEM on:

• Older homes qualifying for upgrades
  
• New or old homes not requiring upgrades
  
• New construction
  

SOME THINGS to KEEP in MIND

It is best to have the HERS Rating done as early in the loan process as possible. This way, the Rating can be performed while other aspects of the loan are being processed. Closing the loan should not be delayed. You may get a larger tax deduction with the EEM because the interest on mortgage payments is tax deductible. This can save you more money than paying for energy upgrades with a credit card, bank loan, or cash, none of which are usually tax deductible.

Each house is as unique as its owner. Benefits derived from the EEM will vary from one house to another, and the benefits in the examples in this book may not apply in all cases. Your lender will be your best source of information on your own EEM benefits.

CASE STUDY:

Adding Energy Improvements through a Home Refinance

"It's wonderful. We're just amazed at the difference. We've hardly used the furnace all winter. The house is much quieter too. It makes sense for everyone to do it."
-Caroline Chang

In the fall of 1995, Caroline and Tommy Chang decided to refinance their 35-year-old home to take advantage of lower interest rates. Their lender suggested they get a HERS Rating on the home so they could finance energy improvements through their new mortgage deal as well.
The lender increased the loan by $8,760 to cover the cost of energy improvements. Their final loan amount was $176,400, which is higher than they could have gotten with out the EEM. The loan closed and the improvements were installed. These included double-paned windows, wall insulation, ceiling insulation, furnace duct repairs and insulation, and a few smaller items. These improvements, combined with their lower mortgage interest rate, mean the Changs will be saving about $230 per month. They will be more comfortable too!

A house could be your biggest investment ever. Use the Energy Efficient Mortgage and invest wisely.
To find out how, call the organizations listed on the back cover.

Disclaimer Statement

Pacific Gas and Electric Company and the Department of Energy do not endorse nor imply endorsement of any product, service, individual or company mentioned and/or involved in this publication. Anyone undertaking to rely on particular details contained herein shall do so at his/her own risk and should independently use and/or verify their applicability to a given situation.

Pacific Gas and Electric Company, 1996, all rights reserved.

Publication developed by:
Pacific Gas and Electric Company
Consumer Energy Management
123 Mission Street
San Francisco, CA 94111
(800) 933-9555

Pacific Gas and Electric
Produced cooperatively by
U.S. Department of Energy
Office of Building Technology
State and Community Programs
1000 Independence Avenue SW
Washington, DC 20585

How about manufactured housing and mobile homes?

Yes, FHA has financing for mobile homes and factory-built housing. We have two loan products – one for those who own the land that the home is on and another for mobile homes that are - or will be - located in mobile home parks.

Office of Manufactured Housing Programs

The Manufactured Housing Program is a national HUD program established to protect the health and safety of the owners of manufactured (mobile) homes through the enforcement of the federal manufactured home construction and safety standards and administration of dispute resolution.

Construction and Safety Program

The Office of Manufactured Housing Programs oversees the construction statutes, standards, and regulations of manufactured housing and provides consumers with resources related to the purchase, set-up, and maintenance of a manufactured home. In addition to these programs, there is recourse for homeowners to resolve complaints through the State Administrative Agency or through dispute resolution.

Manufactured Home Consumer Q & A

The Manufactured Home Consumer Questions and Answers is a guideline for potential homebuyers or to current homeowners providing information on financial assistance, maintenance, and additional resources for manufactured housing.

Purchasing and Relocation

By an act of Congress in 1974, the U.S. Department of Housing and Urban Development (HUD) was designated as the government agency to oversee the Federal Manufactured Housing Program. The area within HUD responsible for the oversight function is the Office of Regulatory Affairs and Manufactured Housing, Office of Manufactured Housing. Most States have a State Administrative Agency (SAA) that administers the HUD program in that State. A listing of the SAAs can be found in the homeowner's manual that is provided with each new home.

What is a Manufactured Home?

A manufactured home (formerly known as a mobile home) is built to the Manufactured Home Construction and Safety Standards (HUD Code) and displays a red certification label on the exterior of each transportable section. Manufactured homes are built in the controlled environment of a manufacturing plant and are transported in one or more sections on a permanent chassis.

May the Retailer Make Alterations to a New Home?

Retailers may make alterations, but must carefully ensure that the change complies with the HUD Code. If an alteration does not comply with the HUD Code, the home cannot be sold or offered for sale. If you have a question about an alteration to your home, contact the home manufacturer, the SAA, or HUD for assistance. An alteration is defined as the replacement, addition, modification, or removal of any equipment or installation, after sale by a manufacturer to a retailer, but prior to sale by the retailer to a purchaser, that may affect the construction; fire safety; occupancy; or plumbing, heating, or electrical systems.

Am I Permitted to Relocate My Home to Another Site or Even Another State?

Yes, when a home is going to be relocated, it is crucial to check with the appropriate authorities having jurisdiction regarding transportation of manufactured homes and applicable zoning regulations regarding placement of the home. There are State laws that regulate the weight, size, running gear, and width of homes being transported on State highways. Also, the data plate zone maps located in the home indicate the zones for which the home was constructed. A manufactured home should never be placed in a more restrictive wind, thermal, or roof load zone than that for which it was built.

What Are My Options for Financing the Purchase of a Manufactured Home?

There are many alternatives for financing your home, including a growing number of lending institutions that are providing conventional and government-insured financing plans for prospective owners. The most common method of financing a manufactured home is through a retail installment contract, available through your retailer. Some lending institutions that offer conventional, long-term real estate mortgages may require the homes to be placed on approved foundations. Manufactured homes are eligible for government insured loans offered by the Federal Housing Administration (FHA), under two separate programs with different requirements, Title I and Title II. One is a loan and one is a mortgage. The Veterans Administration (VA), and the Rural Housing Services (RHS) under the U.S. Department of Agriculture also insure loan.

Installation and Set-Up

What Is Involved in the Installation of a Manufactured Home?

Installation is one of the most important elements of purchasing a new manufactured home. The following items must be considered: (1) locality's requirements for zoning, septic, electrical and/or building permits; (2) site preparation and access to the site; (3) stable soil and proper foundation system, including the anchoring system, that is approved/listed for use in the proper class of soil (this information may be available in the manufacturer's written instructions or obtained from State or local building officials); (4) a perimeter enclosure may be either recommended or required; and (5) utility hook-ups and dryer vent discharge, as addressed in the installation manual provided with the home. You should always check with the retailer and State or local building officials concerning the installation of a manufactured home.

How Should I Choose a Site for my New Home?

Site selection is critical to the performance of your home. Make certain that your home site is properly prepared and that water drains away from the foundation. Easy access to the site ensu res that the transporter will not be impeded by trees.

Who Should Install/Set-up My Home?

Normally, an installer may be either the retailer, through the sales agreement, or someone under contract with the retailer to perform the installation. You should make sure the contractor hired to install the home will do so in accordance with the manufacturer's instructions and, if applicable, State installation regulations. Some States license and/or certify manufactured home installers.

Who Do I Contact if My Home Was Damaged During Installation?

Retailers may contract with their customers for the installation of their homes, in which case the retailer is your first contact for installation-related problems. If the retailer does not arrange for the installation and you choose the installation contractor, you should contact the installer who performed the work. If you are not satisfied with the repair, contact the local authority/SAA having jurisdiction. It is important that all services related to the installation be listed separately in the contract.

Doesn't HUD Regulate How Manufactured Homes are Installed?

The Manufactured Housing Improvement Act of 2000 directs HUD to establish a Model Installation Standard no later than December 27, 2005. For more information on how this standard is being developed, review information on the website for the Manufactured Housing Administering Organization and the What's New section of the Homepage.

Care and Warranty

Will Instructions be provided with my New Manufactured Home?

Yes. Each new manufactured home comes complete with manuals that provide information about the operation, maintenance and repair of your home, including the manufacturer's recommended procedures for installation, anchoring, and connection to on-site utilities.

Will I Receive a Manufacturer's Warranty with my New Home?

Most manufacturers offer a warranty that covers the performance of the structure and factory-installed plumbing, heating, and electrical systems during a specified warranty period. Also, some factory-installed appliances and certain building components are covered by their own warranties. Ask your retailer for details. Before you purchase a home, it is important to understand who offers the warranty, who performs the service, and what is and is not covered. Manufacturers are not responsible for failures that occur as a result of normal wear and tear, consumer abuse, installation, or neglect of maintenance. Note: Some States require warranties under State laws.

Are Manufactured Homes Maintenance-free?

No home is maintenance-free. Building materials used in manufactured homes, just as in site-built homes, require proper maintenance to extend their life. The homeowner's manual, which accompanies every new home, explains proper maintenance requirements.

Do I have to Enclose the Area underneath my Home?

Many manufacturers require some type of perimeter enclosure and/or a ground vapor retarder. Your State, local, and community authorities may be able to advise you regarding these requirements. Enclosure material should be resistant to decay and is usually installed by either the retailer or installer. The perimeter enclosure, when properly installed with adequate ventilation, improves the energy performance of your home and protects your home from the weather. If you elect not to install enclosure material around your home, you will need to check the manufacturer's warranty to determine if this will affect the coverage.

May I Construct an Addition to My Home or make Structural Changes to the Interior?

The Manufactured Housing Improvement Act of 2000 directs HUD to establish a Model Installation Standard no later than December 27, 2005. For more information on how this standard is being developed, review information on the website for the Manufactured Housing Administering Organization and the What's New section of the Homepage.

May I Make Repairs to the Home Myself?

Yes, you should be able to make repairs to your home. Consult with your retailer or manufacturer if you have a concern that any repairs you make will affect your warranty. If your home is still under warranty, the manufacturer's authorization may be required. How Can I Make Repairs to My Home and Be Reimbursed by the Manufacturer? It would be quite unusual for the manufacturer to authorize a homeowner to perform repairs and be reimbursed. You must first check with the manufacturer and/or retailer before starting to make repairs and request that they provide you written authorization or a reimbursement agreement.

What Should I Do if I'm Having Problems with My Home and the Retailer and/or Manufacturer Are No Longer in Business?

Contact your SAA or State agency that regulates manufactured home manufacturers or retailers. Your State may administer a bonding or recovery fund program for such instances.

Homeowner Resources

What is HUD's Role in the Manufactured Housing Industry?

Under Federal law, HUD is responsible for oversight of the Federal Manufactured Housing Program in the United States. Under HUD regulations, the homes are required to be inspected at one stage of production by an inspection agency approved by HUD. In addition, the manufacturer has an approved quality control program in place throughout the production process. A HUD label is applied to each home section, by the manufacturer, to indicate that it is in compliance with the HUD Code. Additionally, Subpart I of the Manufactured Home Procedural and Enforcement Regulations (24CFR 3282.401-416) dictates certain procedures the manufacturer/retailer must follow should they become aware of a problem with a home after it has been shipped from the manufacturing facility.

Does Federal Law Provide Me with Any Other Rights, as the Owner of a Manufactured Home?

Yes. Federal law provides for a manufacturer to notify the original purchaser, and subsequent purchasers whose names and addresses are known, of performance- and safety-related defects that are discovered by the manufacturer. The manufacturer also may be required to correct these defects, if they create an unreasonable risk of injury or death or are related to design or assembly errors. A retailer who sells a manufactured home is reqUired to register with the manufacturer the information necessary to prOVide such notification of defect.

If I Have A Problem with My Home, Whom Do I Contact?

First, contact your retailer. Then follow up with a written list of problems to the retailer, manufacturer, and installer. You should keep a copy of all correspondence for your personal records. Follow up any correspondence with a call to the retailer and/or manufacturer to discuss your problems and schedule a service appointment. If your home is not repaired within a reasonable time period, or if the responsible party refuses to make repairs, you should contact the State Administrative Agency (SAA) that has been approved by HUD to administer and oversee the Federal Manufactured Housing Program in your State. The SAA may assist the homeowner in resolving problems with a manufactured home if the manufacturer and/or retailer has been unresponsive to the homeowner's service request. If you live in a State that is not listed in either the homeowner's manual or this booklet, you will need to contact HUD in Washington, D.C., at 1-800-927-2891, FAX number: (202) 708-4213, email address: mhs@hud.gov. Be prepared to give the SAA or HUD the following information: your name, address, city, state, home and work phone numbers, email address, if available, your home's HUD label and serial number(s), and the manufacturer's and retailer's names and phone numbers.

Additional information is available to consumers who have access to the Internet by visiting the Manufactured Housing home page.

Homeowner's Fact Sheet

Description of Program
The Manufactured Housing Program is a consumer protection program that regulates the construction of certain factory built housing units, called manufactured homes, formerly known as mobile homes. The HUD program also oversees the enforcement of the construction standards working through private inspection agencies and State governments.

HUD Manufacted Home Construction Standards

Manufactured homes are built as dwelling units of at least 320 square feet in size with a permanent chassis to assure the initial and continued transportability of the home. All transportable sections of manufactured homes built in the U.S. after June 15, 1976, must contain a red label. The label is the manufacturer's certification that the home section is built in accordance with HUD's construction and safety standards. HUD standards cover Body and Frame Requirements, Thermal Protection, Plumbing, Electrical, Fire Safety and other aspects of the home. They are published in the Code of Federal Regulations at 24 CFR 3280.

Consumer Complaints

HUD has entered into cooperative agreements with 38 State governments to conduct periodic checks of plant records and to respond to consumer complaints. These State governments each designate a State Administrative Agency (SAA). HUD staff carry out these functions in the other 12 States without SAAs.

If you have any complaints about the performance of your manufactured home that have not been resolved by the retailer where you purchased the home or by the manufacturer that produced the home, you should first contact the SAA where you live, or HUD if you do not live in a State with an SAA. It is important to provide the following information with your complaint:

• Your name,address and a telephone number where you can be reached during the day;
  
• The name of the manufacturer, serial and model number, label number (the red tag on the back of the home), the date purchased and the retailer where you purchased the home;
  
• A description of the problem along with copies of any correspondence or contacts with the retailer and the manufacturer to resolve the problem.

Program Management

HUD manages the program from its Headquarters office in Washington, DC. The mailing address is:

Office of Manufactured Housing Programs
Office of Regulatory Affairs and Manufactured Housing
Department of Housing and Urban Development
451 7th St. SW, Room 9164 Washington, D.C. 20410-8000

The toll free number for manufactured home consumer complaints is 1-800-927-2891. Consumers may leave a message and request that a staff person return their call. The program office's fax number is 202-708-4213 and the Internet e-mail is mhs@hud.gov.

Other Related HUD Program Information

Manufactured Home Construction and Safety Standards, 24 CFR 3280. Manufactured Home Procedural and Enforcement Regulations, 24 CFR 3282. Both are available in print free of charge from the HUD Customer Service Center at 1-800-767-7468 or fax 1-202-708-2313.

• Retailer Responsibilities Under the Manufactured Housing Program
  
• List of State government and third-party approved Inspection Agencies
  
• List of State Administrative Agencies

Permanent Foundations Guide for Manufactured Housing. issued September 1996. Available as software or in print from HUD user.

Financial help for seniors
Are you 62 or older? Do you live in your home? Do you own it outright or have a low loan balance? If you can answer "yes" to all of these questions, then the FHA Reverse Mortgage might be right for you. It lets you convert a portion of your equity into cash.

Top Ten Things to Know if You're Interested in a Reverse Mortgage

Reverse mortgages are becoming popular in America. HUD's Federal Housing Administration (FHA) created one of the first. The Home Equity Conversion Mortgage (HECM) is FHA's reverse mortgage program which enables you to withdraw some of the equity in your home. The HECM is a safe plan that can give older Americans greater financial security. Many seniors use it to supplement social security, meet unexpected medical expenses, make home improvements and more. You can receive free information about reverse mortgages in general by calling AARP toll free at (800) 209-8085. Since your home is probably your largest single investment, it's smart to know more about reverse mortgages, and decide if one is right for you!

 1. What is a reverse mortgage?
A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence. FHA's HECM provides these benefits. You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.

2. Can I qualify for FHA's HECM reverse mortgage?
To be eligible for a FHA HECM, the FHA requires that you be a homeowner 62 years of age or older, own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, and you must live in the home. You are further required to receive consumer information from an approved HECM counselor prior to obtaining the loan. You can contact the Housing Counseling Clearinghouse on (800) 569-4287 for the name and telephone number of a HUD-approved counseling agency and a list of FHA-approved lenders within your area.

3. Can I apply if I didn't buy my present house with FHA mortgage insurance?
Yes. It doesn't matter if you didn't buy it with an FHA-insured mortgage. Your new FHA HECM will be FHA-insured.

4. What types of homes are eligible?
To be eligible for the FHA HECM, your home must be a single family home or a 1-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible.

5. What's the difference between a reverse mortgage and a bank home equity loan?
With a traditional second mortgage, or a home equity line of credit, you must have sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different in that it pays you, and is available regardless of your current income. The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.

You don't make payments, because the loan is not due as long as the house is your principal residence. Like all homeowners, you still are required to pay your real estate taxes, insurance and other conventional payments like utilities. With an FHA HECM you cannot be foreclosed or forced to vacate your house because you "missed your mortgage payment."

6. Can the lender take my home away if I outlive the loan?
No. You do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keeps the taxes and insurance current. You can never owe more than the value of your home at the time you or your heirs sell the home.

7. Will I still have an estate that I can leave to my heirs?
When you sell your home, you or your estate will repay the cash you received from the reverse mortgage plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs.

8. How much money can I get from my home?
The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow. You can use an online calculator like the one on the AARP website to get an idea of what you may be able to borrow.

9. Should I use an estate planning service to find a reverse mortgage?
FHA does NOT recommend using any service that charges a fee for referring a borrower to an FHA lender. FHA provides this information free, and HUD-approved housing counseling agencies are available for free or at very low cost, to provide information, counseling, and a free referral to a list of FHA-approved lenders. Search online or call (800) 569-4287 toll-free, for the name and location of a HUD-approved housing counseling agency near you.

10. How do I receive my payments?
You have five options:

• Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
• Term - equal monthly payments for a fixed period of months selected.
• Line of Credit - unscheduled payments or installments, at times and in amounts of your choosing until the line of credit is exhausted.
• Modified Tenure - combination of line of credit with monthly payments for as long as you remain in the home.
• Modified Term - combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.

Want a fixer-upper?
FHA has a loan that allows you to buy a home, fix it up, and include all the costs in one loan. Or, if you own a home that you want to re-model or repair, you can refinance what you owe and add the cost of repairs - all in one loan.
Funds for Handyman-Specials
and Fixer-Uppers

The purchase of a house that needs repair is often a catch-22 situation, because the bank won't lend the money to buy the house until the repairs are complete, and the repairs can't be done until the house has been purchased.

HUD's 203(k) program can help you with this quagmire and allow you to purchase or refinance a property plus include in the loan the cost of making the repairs and improvements. The FHA insured 203(k) loan is provided through approved mortgage lenders nationwide. It is available to persons wanting to occupy the home.

The down payment requirement for an owner-occupant (or a nonprofit organization or government agency) is approximately 3.5% of the acquisition and repair costs of the property.

The 203(k) loan includes the following steps:

• A potential homebuyer locates a fixer-upper
  and executes a sales contract after doing
  a feasibility analysis of the property with their
  real estate professional. The contract should
  state that the buyer is seeking a 203(k) loan
  and that the contract is contingent on loan
  approval based on additional required repairs by the FHA or the lender.
  
  
• The homebuyer then selects an FHA-approved 203(k) lender and arranges for a detailed proposal showing the scope of work to be done, including a detailed cost estimate on each repair or improvement of the project.
  
  
• The appraisal is performed to determine the value of the property after renovation.
  
  
• If the borrower passes the lender's credit-worthiness test, the loan closes for an amount that will cover the purchase or refinance cost of the property, the remodeling costs and the allowable closing costs. The amount of the loan will also include a contingency reserve of 10% to 20% of the total remodeling costs and is used to cover any extra work not included in the original proposal.
  
  
• At closing, the seller of the property is paid off and the remaining funds are put in an escrow account to pay for the repairs and improvements during the rehabilitation period.
  
  
• The mortgage payments and remodeling begin after the loan closes. The borrower can decide to have up to six mortgage payments (PITI) put into the cost of rehabilitation if the property is not going to be occupied during construction, but it cannot exceed the length of time it is estimated to complete the rehab.
  
  
• Escrowed funds are released to the contractor during construction through a series of draw requests for completed work. To ensure completion of the job, 10% of each draw is held back; this money is paid after the lender determines their will be no liens on the property.

FHA Loan Assistance to Help You Get a Mortgage

Down payment assistance and community redevelopment programs offer affordable housing opportunities to first-time homebuyers, low-income and moderate-income individuals and families who wish to achieve homeownership.

Elimination of Non Profit Down Payment Assistance
On July 30, 2008, President Bush signed H.R. 3221 - Housing and Economic Recovery Act of 2008. Section 2113 of the bill prohibits seller-funded DPA (Down Payment Assistance) for loans backed by the Federal Housing Administration. Prior to this bill, the seller could contribute up to 6% to the buyer to cover either a down payment or closing costs on an FHA loan. The changes took effect on Oct. 1, 2008.

We provide this information for reference only.

AMERIDREAM

The AmeriDream program offers gift funds up to 10% of the home's purchase price which do not have to be paid back. Buyers must agree however, to return any funds that are not used toward down payments or closing costs and to return the funds if the sale of the home does not close on the scheduled closing date.

NEHEMIAH

The Nehemiah Program has helped over a quarter of a million Americans purchase homes. Unlike some down payment assistance programs, Nehemiah offers down payment help to anyone who qualifies for an approved FHA loan. Buyers can get up to 6% of the final contract sales price for down payment and/or closing costs.

AMERICAN FAMILY FUNDS

American Family Funds (AFF) administers The Dove Foundation, a non-profit charity offering down payment and/or closing cost assistance to qualified American home buyers. Once you are pre-qualified for the FHA loan and find a property you want to buy, notify your loan officer, who will apply for the AFF down payment assistance on your behalf.

FAMILY HOME PROVIDERS

Family Home Providers is a non-profit affordable housing company offering down payment assistance to any family with steady employment and good credit. Under the Family Home Providers plan, those with an FHA loan are eligible for 3% of the final contract price of the home purchased with the FHA approved loan.

FUTURES HOME ASSISTANCE

Futures Home Assistance is a non-profit charity group offering a free down payment gift up to 6% of the closing costs of a home purchased with an FHA loan. The mission statement of Futures Home Assistance includes the belief that people who dream of owning a home should not be hindered because of a lack of down payment funds.

GRANT AMERICA

The Genesis Program, also known as Grant America, is a non-profit down payment assistance program. It is operated by the Penobscot Indian Tribal Nation and is HUD-approved to offer up to $34,000 in assistance, even to those living outside tribal jurisdiction.

HOUSING ACTION RESOURCE TRUST

The Housing Action Resource Trust or HART program is a non-profit housing organization offering help to home buyers who qualify for FHA "first mortgage" loans. A first mortgage does not mean "first-time home buyers only," but rather those who are getting the initial mortgage and not applying for a second mortgage or home equity loan.

NEWSONG

Newsong provides a down payment assistance program for residential and commercial properties. This program offers a one-time gift for all closing costs, and there are no income requirements or limits on who can participate. Anyone who qualifies for an FHA loan can apply to receive down payment help from Newsong.

PARTNERS IN CHARITY

Partners In Charity (PIC) is a non-profit group offering down payment assistance on properties such as single-family homes, condominiums, and multi-unit properties. Assistance is also available for rehabilitation programs. Partners In Charity funds are offered to those who qualify for FHA loans or are pre-approved for FHA loan amounts.

RESPONSIBLE HOME OWNERSHIP

The Responsible Home Ownership program is run by a non-profit organization called Community Housing and Development Corporation. This program offers down payment assistance to low-income individuals who have steady income and good credit. Check with your loan officer if you have specific questions about your participation in this program using an FHA home home loan.

QUICKDOWN

Borrowers Benefit for this Second Chance Refinancing

The Federal Housing Administration (FHA) was established in 1934 to offer mortgage insurance on loans through FHA-approved lenders. The FHA insures mortgages on single and multi-family homes, and other approved purchases such as manufactured homes. The FHA does not issue the loans themselves, but FHA mortgage insurance is quite attractive for a prospective lender because FHA mortgage insurance protects the lender's investment. Should a homeowner default on the mortgage or go into foreclosure, the FHA pays the lender.

Loans insured by the FHA feature low down payments, and costs for FHA mortgage insurance are built into the mortgage payment. Those costs disappear five years into the loan or when the loan reaches 78% of the property value (whichever is longer).

Many homeowners with adjustable rate mortgages find themselves in financial trouble because of current interest rate increases. Foreclosure is a bigger threat than ever, but fortunately the FHA has stepped in to help with FHA Secure Refinancing. Starting July 14, an expanded FHA Secure refinancing plan allows homeowners who have missed up to three mortgage payments in the last 12 months under certain circumstances to avoid foreclosure with FHA Secure.

You don't need an existing FHA home loan to qualify for an FHA Secure refinance loan - the program is designed to specifically to help those without FHA loans to get lower payments, prevent default and foreclosure, and protect their investment.

• Homeowners with current or delinquent non-FHA adjustable rate mortgages are eligible.
• You are not automatically disqualified based on delinquency on your current loan.
• You must have a dependable income and be able to make your mortgage payment.
• If you are in default, you must show delinquency or default is the result of increased interest rates and the resulting higher mortgage payments.
• If you are current on your mortgage payments, any type of conventional loan is eligible for FHA Secure refinancing.

In addition to these specifications;

• "Those who are current on mortgage payments can refinance non-FHA fixed rate or adjustable rate mortgages. Those who are behind on their mortgage payments may only refinance adjustable rate mortgages.
• "Borrowers may be required to verify their mortgage payment history through the mortgage servicer or with cancelled mortgage payment checks.
• "Cash out refinancing" is not eligible under FHA Secure.

FHA Secure refinancing is available for single-family or multi-family homes and manufactured homes. A new FHA premium pricing plan goes into effect on the same date the expanded FHA Secure refinancing program begins, July 14 2008. Borrowers should know this "second chance" refinancing does not indicate relaxed requirements for credit. Borrowers applying for FHA Secure are subject to the same requirements as any other applicant for an FHA loan. Delinquency issues for mortgage payments aside, loan officers still require proof you are a good credit risk. Borrowers should;

• Have steady income from a dependable source.
• Show a reliable payment history on other debts.
• Have a debt-to-income ratio below 41%.
• Have a credit score appropriate for any home loan.

If you are need further explanation of the terms or conditions of FHA Secure, be sure to ask your loan officer for clarification before you sign.

Who Qualifies for the Obama Mortgage Refinancing Program?

There has been a lot of press on what many people call the Obama Mortgage. But what IS an Obama Mortgage and who is eligible?

In early 2009, the Obama administration announced a program called Making Home Affordable. This program is expected to help nine million homeowners keep their homes and avoid foreclosure through refinancing and modified loans designed to lower monthly mortgage payments.

The Obama mortgage is not part of the Hope for Homeowners program started in 2008. Making Home Affordable does offer hope for homeowners in need of mortgage rescue, but there are specific conditions for the program. Do you wish to apply for refinancing under Making Home Affordable?

• You must be current on your mortgage payments. Those who hope to take advantage of programs under a 2008 or 2009 housing rescue bill soon learn that staying current on your mortgage is often one of the first requirements. That’s one reason financial advisors tell people not to default or stop paying their mortgages. To qualify for an Obama Mortgage you must not have been more than 30 days late on any mortgage payment in the last 12 months.
  
  
• Your home must be your primary residence. For those in need of homeowner’s relief with FHA loans, this is a very familiar condition, but for those in conventional loans, the “primary residence” requirement may be new. Those who don’t live in the building they seek refinancing for will not be approved for an Obama mortgage.
  
  
• Your home must be financed with either a Fannie Mae or Freddie Mac loan. If you aren’t sure if your home loan meets this requirement, contact your loan officer or call 1-800-Freddie or 1-800-7FANNIE to learn more.
  
  
• Normally, home owners with loan-to-value ratios above 80% are not eligible for refinancing, but Home Affordable gives homeowners affected by such loan-to-value ratios a second chance; you may be eligible to refinance into lower mortgage rates and stable interest rates if you qualify. The Home Affordable refinance program’s official site asks, “Do you believe that the amount you owe on your first mortgage is about the same or less than the current value of your house?” If so, you qualify for refinancing rather than loan modification.

If you meet these conditions, your next step should be to contact your loan officer to ask about starting the application process. You will need all information about your current loan, any second mortgage plus other lines of credit like credit cards or personal loans. You’ll also be asked to supply your most recent tax documents as part of the process of applying for an Obama mortgage refinancing package.

Legislation is pending to help those who have FHA and VA loans get similar homeowner relief as those who have Fannie Mae and Freddie Mac loans under Home Affordable, but as of now those with FHA and VA loans should ask their lenders what alternative options are available since the Obama mortgage is not designed for FHA and VA borrowers.

How Does the HOPE Act Help?

When the subprime mortgage crisis reached its peak in the fall of 2008, the federal government took steps to help stabilize the American housing market. The Emergency Economic Stabilization Act of 2008 was signed into law on October 3, 2008. Part of that new law includes a requirement to help qualified homeowners avoid foreclosure through federal loan guarantees and credit enhancements.

The HOPE for Homeowners act is designed to prevent qualified home owners from defaulting on their loans, and avert foreclosure. This is done through refinancing into affordable, fixed-rate mortgages.

If you are in danger of defaulting on your home loan, it’s very important to contact your lender immediately and request an evaluation of your situation. If you are able to qualify, your loan officer can help you begin the paperwork to prevent foreclosure. If you are already in discussions with the bank, your loan officer may suggest HOPE for Homeowners as a way to proceed.

AM I ELIGIBLE?

Homeowners may be eligible for HOPE for Homeowners program if they meet the following criteria as specified in the HOPE for Homeowners act 2008:

• The original mortgage is dated on or before January 1, 2008
• The homeowner did not default on the original loan intentionally
• The homeowner is not invested in multiple home loans
• All information on the original mortgage is true (including income sources and job details)
• The homeowner has not been convicted of fraud

HOPE for Homeowners is not a simple refinancing program. While it does allow qualified borrowers who are stuck in variable-rate mortgages to refinance into affordable, fixed-rate mortgages, there is a trade-off known as equity sharing.

WHAT IS EQUITY SHARING?

Those who apply and are accepted for the HOPE program must agree to an equity sharing program. Equity is the difference between the amount of your original loan and the actual value of the home; if you sell or refinance your home after entering the HOPE program, under the terms of HOPE you are required to share any equity with the FHA. How much the government receives depends on how long you wait to sell or refinance. If you sell in the first year of your participation in HOPE, the government receives 100% of the equity. There is a sliding scale after the first year;

• Year two—homeowners can keep 10% of the equity, FHA gets 90%
• Year three—homeowners keep 20%, FHA gets 80%
• Year four—homeowners keep 30%, FHA gets 70%
• Year five—homeowners keep 40%, FHA gets 60%

After year five, homeowners split the equity from sale or refinancing 50/50 with the Federal Housing Administration. If there is no equity or negative equity at the time of sale or refinancing, the FHA receives nothing.

WHAT ARE THE BENEFITS OF HOPE?

The benefits of participating in HOPE for Homeowners include;

• Keeping your home
• Getting a 30-year fixed-rate mortgage (extendable to 40 years in some cases)
• Lower monthly mortgage payments which do not change

The 30-year loan is extendable in some situations. Extending the terms to 40 years is helpful in cases where the homeowner has a large amount of debt; the 40-year term reduces mortgage payments further. There are requirements and restrictions on these extended loans. Check with your lender to see if you qualify for the 40-year loan terms under the HOPE program.

The HOPE for Homeowners program runs until September 20, 2011.

News, updates, and explanations to keep you informed.

Frequently Asked Questions:
The 2009 First-Time Homebuyer's Tax Credit

The 2009 First Time Homebuyer's Tax Credit is quite different from the one offered in 2008. One of the most important differences is that the 2009 tax credit does not have to be repaid. If you're looking for homebuyer relief, the 2009 tax credit is quite an incentive to buy--even in a troubled housing market. But what do you need to know about this tax credit? There are many questions first time homebuyers need answers to before taking the plunge:

How does the IRS determine how much tax credit I am entitled to?

First time homebuyers in 2009 are entitled to a tax credit totaling 10% of the purchase price of the home. The maximum tax credit is $8000. Your amount may be less depending on the purchase price of your house.

The rules say to qualify, the purchasing date on my home must be between January 1, 2009 and December 1, 2009. How is the purchasing date determined?

Under the rules for the 2009 First Time Homebuyer's Tax Credit, your purchasing date is the date when you close on the house and the titled is transferred into your name. That date you qualified for the loan or signed the loan paperwork doesn't count. The date on your title is your purchase date.

I'm a first-time homebuyer but I want to buy a condo or townhouse. Can I still qualify?

Like many government programs such as FHA mortgages and VA loans, those who want to buy a condo or townhome are eligible for the 2009 tax credit. You can also take advantage of the 2009 First Time Homebuyer's tax credit if you're buying a manufactured home, mobile home or even a houseboat. Regardless of the type of home you want to buy, it must be purchased as your primary residence. Otherwise your home won't qualify for the tax credit.

Does that mean a summer home purchase doesn't qualify?

Yes. Summer homes are not considered primary residences.

What if I already purchased a home in 2009 and took the 2008 First Time Homebuyer's tax credit for $7500?

Under certain circumstances you may be able to file an amended tax return and claim the 2009 tax credit. You'll need to file a 1040X, but if you are unfamiliar with the procedure it may be wise to get professional tax help to make sure you file the amended return properly and claim the tax credit you are entitled to by law.

Is the 2009 First Time Homebuyer's Tax Credit a deduction? Do I get money back?

This program is not like other homeowner relief programs like the Obama Mortgage. The $8000 you may be entitled to this year is a tax credit--it reduces the amount of money you owe the IRS.

If you still have unanswered questions about the First Time Homebuyer's Tax Credit, ask a tax professional or your income tax preparer. Some situations may require additional paperwork or (as mentioned above) filing an amended tax return. Always get professional assistance if you don't understand how to fill out or properly file these documents with the IRS.

What is an FHA Reverse Mortgage?

There are many programs and home loan products that allow homeowners to take advantage of the equity they've built up in their homes. One resource qualified FHA mortgage holders have at their disposal is the Home Equity Conversion Mortgage (HECM) loan, also known as an FHA reverse mortgage. FHA HECM loans are like other home equity loans--they let you cash in on part of the value a home has built up over the years. But the FHA reverse mortgage is unique because FHA borrowers don't make any payments on FHA HECM loans until they stop using the home as their principal residence. There are no mortgage payments due until you stop using the home as a primary residence.

Since a "principal residence" is defined as the place where the borrower does the majority of their dwelling, using summer homes, time shares or RVs doesn't disqualify you from an FHA HECM loan. As long as you meet the requirements for an FHA HECM loan and use the property as your main address, you can take the cash value of your home's equity to use in any number of ways.

QUALIFYING FOR FHA REVERSE MORTGAGE OR HECM LOANS

To qualify for an FHA reverse mortgage, you must be at least 62 years old. You must own your home, or have a low enough balance that the FHA reverse mortgage loan will pay off the outstanding amount when the HECM loan is approved. Like other FHA loans and FHA mortgages, the property must be either a single-family residence or a one to four unit property where the borrower occupies one of the units.
Condos and manufactured homes qualify, but only if they meet FHA requirements.

FHA reverse mortgages are also different than conventional reverse mortgages or HECM loans because the borrower is required to get financial counseling from an approved HECM counselor. This is a condition of the loan and is non-negotiable. The Department of Housing and Urban Development recommends searching for an approved counselor by calling the Housing Counseling Clearinghouse at 1-800-569-4287.

NON-FHA HOMES

It doesn't matter if you purchased your home with a conventional loan or an FHA mortgage. As long as you meet FHA and HUD requirements for approval, you can use an FHA reverse mortgage to claim the cash value equivalent for the equity in your home.

One of the conditions of the FHA reverse mortgage is that you aren't allowed to owe more than the home is worth. The amount of your loan is determined by interest rates, your credit report, and by the appraised value of the property. If you are approved for an FHA reverse mortgage or HECM, you must pay off any remaining balance at closing time on your new loan. As with any other FHA home loan, you are still responsible for paying property taxes, insurance, and related bills.

Like other FHA mortgage products, your application must be made through an FHA approved lender. If your current financial institution does not participate in FHA loan programs, look up the local FHA-approved banks in your area to get started.

Tax Break Money and FHA Loan Downpayments

Recent headlines brought good news for first time home buyers purchasing a home with an FHA loan. The Department of Housing and Urban Development announced those using FHA lenders and HUD-approved non profit agencies are eligible to take advantage of the 2009 First Time Homebuyers Tax Credit in a new way--as part of the down payment.

The 2009 tax credit for first time homebuyers provides a tax break totaling 10% of the purchase price of the home with a maximum tax credit of $8000. (The amount may be less depending on the purchase price.) For those applying for an FHA mortgage, that entire amount can be used for at closing time. This is a huge help for those with limited funds available for closing costs.

HOW DO I GET THE TAX CREDIT MONEY WHEN I HAVEN'T FILED MY TAXES?

According to U.S. Department of Housing and Urban Development Secretary Shaun Donovan, FHA lenders and HUD-approved non-profit groups will be given authority to issue "bridge loans" to cover the amount of the tax credit until the borrower gets tax money from the IRS after taxes have been filed. These bridge loans are meant to be short-term, intended only to provide access to the tax rebate money until it's paid to the buyer.

HOW MUCH DO I GET?

Your individual tax credit is calculated based on the purchase price of the home. It's not calculated by the amount of your FHA loan or any other factor. You will get 10% of the purchase price as your tax credit, with a cap of $8000 total.

DO I HAVE TO PAY BACK MY TAX CREDIT?

Previous tax credits for first time home buyers had different terms than the 2009 First Time Home Buyer's Tax Credit. Unlike the terms of older tax credits, you do not have to repay the 2009 credit. You do have to pay back the short-term bridge loan with your tax credit. The rest of your tax refund is yours to keep, but if you take advantage of the bridge loan for your FHA home loan down payment, you'll be required to use the tax credit to pay off the loan.

Your FHA mortgage or conventional loan is separate from the short-term bridge loan used to finance the down payment--be sure to ask your lender to clarify the terms of the short-term bridge loan, and how payment should be delivered on the loan covering your tax credit. It's very important to understand the terms of the agreement on your bridge loan. At press time, specifics on these loans is not clear but the agreement you sign for a bridge loan is binding. Don't assume the terms of your FHA mortgage payments also apply to the bridge loan.

FHA Loan Myths—'I’m Self-Employed, So I Don’t Qualify For an FHA Home Loan'

One of the biggest myths about getting an FHA home loan? The idea that self-employed people are automatically disqualified for an FHA mortgage because of their employment status. While it’s true that it’s tougher for some in the early stages of a small business to make ends meet, being self-employed is not the kiss of death on an FHA loan application.

Proof of this can be found on the forms and FHA mortgage pages of lender websites—most financial institutions offering FHA loans offer a page on the bank’s website offering “FHA loan prep” checklists which include advice on what to submit if you are self-employed. The notion that you can’t qualify if you work for yourself isn’t shared by lenders.

That said, it can be more difficult for some small business owners to qualify for an FHA loan, FHA refinance or homeowner bailout program for one simple reason; not keeping good records. You may be quite successful in your small business or as a freelance contractor, but if you can’t show on paper that you have a consistent income, the FHA can’t conclude that you are a good risk.

Your FHA loan application requires you to show not only that you were gainfully employed, but also what your net income was compared to business expenses. Self-employed people will also need to show a profit-loss statement. If you don’t keep good records of legitimate business expenses, don’t have your taxes professionally prepared, and guesstimate your profits and losses, the FHA loan process could come to a halt very quickly for you. The question your loan officer will ask goes from “Can you afford your monthly FHA home loan payments?” to, “How long until my applicant needs some kind of homeowner bailout program?”

This is why self-employed people should take plenty of extra time when planning to buy a home. For some, the average prep time is about one year—especially if there are issues with credit repair or disputes on credit reports to deal with. For a self-employed person, showing reliable income for two years is a very good way to make conditions as favorable as possible to get approved for an FHA mortgage.

That means solid record-keeping, an aggressive approach to finding (and keeping) steady work, and paying strict attention to your taxes. Remember that unlike those with traditional careers, there’s an additional layer of scrutiny to the ebb and flow of steady income. If you went a long period between contracts, or if your business shut down for a time, your loan officer will want to know why and whether such periods of inactivity could happen again or how they affect your ability to make your FHA mortgage payments.

Is it more difficult for self-employed people to get an FHA mortgage? Yes. Is it impossible? Absolutely not, but you need to plan for extra scrutiny to your personal bottom line, keep good records, and be able to show your loan officer that you are indeed a good risk.

What is a 'Non-Purchasing Spouse?'

First-time home buyers who want an FHA mortgage will learn about a variety of requirements which must be met to qualify for an FHA home loan. Some are set by the financial institution, some by FHA rules, and some are required by state law.

State laws governing FHA loan application procedures may vary greatly depending on where you live. Did you know in some states a non-purchasing spouse may still have to sign FHA loan paperwork in order for you to qualify for an FHA loan? The spouse may also have to go through a credit check even though they aren't co-signing or co-borrowing.

This is usually true when state law requires it when the applicant is trying to get an FHA loan on a first mortgage. Fortunately, the non-purchasing spouse’s signature is required only to acknowledge in writing that the spouse has no claim on the property. The signature also indicates the spouse is not a borrower and not required to sign the loan contract.

In addition to the signature requirement, in some cases the spouse’s debts must be considered in what FHA home loan paperwork describes as the borrower’s “qualifying ratios”. This information is used to determine the borrower's debt-to-income ratio. You'll find this common in states with “community property” laws where each spouse is entitled and liable for half of all property held in common in the marriage. Community property states have laws making each partner liable for a portion of the other’s debts.

When the non-purchasing spouse must submit to a credit check FHA loan rules dictate that bad credit reports on the non-purchasing spouse can’t be used to deny an FHA mortgage to the borrower, but the credit check is required nevertheless.

It’s important to understand that in these cases, the rules apply as long as you are legally married, regardless of circumstance. Even if you are planning a divorce, the non-purchasing spouse's signature is required unless otherwise specified by state law. Some states may offer some form of relief for people getting divorced; otherwise even if you are legally separated, about to finalize a divorce decree or see the judge, until you are no longer legally married you must still submit the non-purchasing spouse’s signature on the required documents.

Where applicable, FHA loan non-purchasing spouse signature requirements are for first liens. According to the FHA, in all other situations the spouse's name or signature not appear on the loan documentation. Non-purchasing spouses do not get title to the property bought with an FHA home loan once the loan is paid in full. That's not just important for looking ahead to making a final payment, it may also apply when refinancing. Ask your loan officer for full details about how your state laws affect your FHA loan paperwork in this area.

$8,000 Worth of Great News for First-Time FHA Loan Homebuyers

In addition to the Obama mortgage and other homeowner relief programs, 2009 also brings with it a tax break for first time home buyers. If you are contemplating an FHA loan on your first home, there’s never been a better time to buy thanks to the $8,000 tax credit offered to those who qualify.

There’s nothing new about tax credits for home buyers, but the 2009 first time home buyer’s tax credit passed as part of the Obama stimulus package does have some important differences. Unlike the 2008 tax credit, the 2009 version does not have to be paid back to the government. This tax credit is not permanent—it is only good until December 1, 2009.

First-time home buyers aren’t instantly eligible for the tax break. There are a set of requirements you must meet in order to get the $8,000 tax credit on your first time homebuyer mortgage. Those requirements include “first time home buyer” status, naturally—but what does that mean?

In this case, first time home buyers are those who are purchasing a “primary residence” for the first time. Are you trying to get an FHA loan and interested in this tax credit? FHA loans require you to live in the property you buy, so if you are approved for an FHA loan you meet the “primary residence” requirement for the tax credit.

But this tax break is not just for those who have never purchased a home before. If you have not owned a home in the three years prior to the purchase of your new primary residence, you also qualify if you buy your home between January 1st, 2009 and December 1st, 2009.

The 2009 Federal Tax credit requires borrowers to make no more than $75,000 per year for single borrowers and $150,000 for married couples filing a joint tax return. Married couples filing separately get more leeway with their incomes—you have a higher income limit in these cases. There’s just one catch; married couples who want the 2009 tax credit must BOTH be purchasing their first home. If either spouse has purchased a primary residence in the last three years, the couple cannot qualify for the $8,000 tax break.

It’s important to know that simply having purchased property does not automatically disqualify you from this tax credit. If you have purchased a summer home or any other building that is not considered a primary residence—the place where you live most of the year—you may still qualify for the $8,000 tax credit.

FHA Home Loans and Property Taxes

When first time homebuyers start looking for a house to purchase with an FHA home loan, there are many details to sort through; appraisals, interest rates, closing cost considerations and much more. One important factor in the cost of any home that should not be ignored? Property taxes.

When you buy a home with an FHA loan, many of your costs are immediately explained. Your closing costs and FHA mortgage interest, for example—you’ll know what these expenses can add up to before you sign on the dotted line. But property taxes shouldn’t be very far down your list of concerns; you should know what your tax liabilities are on any property before you commit to the purchase. The amount of property tax you pay might not be a deal breaker on the house of your dreams, but property taxes should be considered in any budget.

HOW DO I LEARN WHAT MY PROPERTY TAX LIABILITY IS?

When you are pre-approved for an FHA home loan and looking for a property to buy, you can get a very good idea of what your potential property tax bill might be simply by checking the listing on the property you want to view. Many times last year’s tax information is included along with other important information on the real estate listing. If it is not published, ask the seller to give you the amount he or she paid last year or have them show you their property tax bill. It’s important to understand that taxes do change; last year’s payment might not be indicative of this year’s liability. A bit of research will show whether local amendments or recent legislation might have raised the amount you could owe this year on a given property.

DO NEW HOMES HAVE HIGHER PROPERTY TAXES?

Older homes often have lower property taxes than newer ones. The trade off with buying an older home with an FHA loan often comes with repairs and upkeep issues. How old is the roof on the home you want to buy? Do you know how much it will cost to repair or replace the roof when the time comes?

Buying an older home as a fixer-upper is great for those who have the skills to do so, but if you need to hire a team to do the work for you, you may wish to consider the pros and cons of buying an older home versus using your FHA home loan to buy a newer, less maintenance-intensive property. The costs of upkeep might offset any savings you find in property taxes with some older homes.

ARE THERE ANY OFFSETS TO MY PROPERTY TAXES?

Many people new to purchasing a home are surprised to learn they can deduct the interest from the FHA mortgage on their federal income taxes. The amount of money you spend on property taxes may or may not be offset by such deductions—it all depends on your specific situation, but you can learn a lot by asking a real estate professional about how to help yourself at tax time by taking the right deductions allowed by law connected to your FHA mortgage and status as a property owner.

Property taxes should always be figured into the final cost of purchasing a home. Know how those taxes can affect your bottom line--prepare for them in the same way you make allowances in your budget for the primary amount of your FHA loan, the interest, and any mortgage insurance you might carry. Divide the total amount of your property tax liability by 12 and save that amount of money each month to prepare for tax season.

Could Down Payment Assistance Programs Make a Comeback?

Down payment assistance programs were all the rage, once upon a time—until President George Bush sighed H.R. 3221, The Housing and Economic Recovery Act of 2008. Part of the act banned seller-funded down payment assistance programs such as AmeriDream, the Nehemiah program and others.

Down payment assistance programs allowed the seller and charitable organizations to contribute towards the closing costs and down payment of FHA loans. For first-time homebuyers, down payment assistance programs helped make getting that first home with an FHA loan even more affordable. When the law banning down payment assistance programs took effect on 1 October, 2008, many borrowers and lenders had to find other ways to reduce or mitigate closing costs and down payments. Now there are developments that could give hope for homeowners who want to purchase using an FHA guaranteed loan; a bill called the FHA Seller-Financed Downpayment Reform Act of 2009. This was introduced in January 2009 by Representative Al Green (D-TX) and 17 co-sponsors.

The bill is designed to, “revise the requirements for seller-financed downpayments (also known as SFDPA for short) for mortgages for single-family housing insured by the Secretary of Housing and Urban Development under title II of the National Housing Act,” according to OpenCongress.org.

There are pros and cons to reviving down payment assistance programs. Opponents of the 2009 FHA Seller-Financed Downpayment Reform Act say bringing back downpayment assistance programs like AmeriDream or GrantAmerica could potentially distort housing prices. According to one site which opposes the return of seller-financed downpayment assistance, “Usually the SFDPA money comes from simply marking up the home (sic) value.”

Those in favor of SFDPA programs point out that the FHA requires a 3.5% down payment as part of the terms of an FHA home mortgage. When down payment assistance programs are available, that down payment isn’t necessarily made by the borrower. Some down payment assistance programs even offer additional money to cut the costs further. The advantage to the cash-strapped buyer is obvious. Little or no downpayment means a smaller financial drain during the transition to becoming a homeowner.

Assuming the “marking up the home value” complaint is legitimate, the issue can be viewed from a different perspective. If a buyer knows in advance that getting a greatly reduced down payment means getting a markup to offset the down payment issue, seller financed down payment assistance becomes an option--IF the buyer is willing to accept the markup.

You could choose to pay the required FHA loan down payment in full, or opt to pay a bit more over the long run to make up for not having to put a larger amount of money down at closing. The real issue is being an informed borrower, reading the fine print, and knowing how your choices about making the down payment and how much could affect your bottom line overall. Choose a larger downpayment and lower FHA loan payments every month, or accept a higher monthly bill to avoid putting a drain on your bank account. It's the informed decision that counts.

For now, the “controversy” is moot—the 2009 FHA Seller-Financed Downpayment Reform Act has not been passed or rejected. Until changes to the law are passed by the federal government, down payment assistance programs are still banned; the programs active until October 2008 are over until new laws give them permission to return to business in some form.

FHA Home Loans Growing In Spite of Housing Slump

With an estimated $290 billion in FHA loans projected for fiscal 2009, it's clear that while conventional lending markets are hurting the FHA is meeting a serious need for affordable home loans. According to recent press, FHA mortgages tripled in 2008; in 2009 the amounts are expected to be even higher. 2009 has seen 30 year rates on home loans drop to record lows, and homeowner bailout programs and housing stimulus plans have only made it more attractive to apply for an FHA mortgage.

Some of the most recent developments are the most helpful. First-time home buyers and home owners have heard plenty about the Obama mortgage, but the latest news is even better for many currently in the market for their first home. On May 29, U.S. Housing and Urban Development Secretary Shaun Donovan made it official; home buyers can use their 2009 First Time Home Buyer's Tax Credit (also known to some as the Obama tax credit) as a down payment on their FHA home loans.

This is done by monetizing the tax credit through a short-term bridge loan which is applied as a down payment on the FHA loan; the larger the down payment, the lower overall cost of buying that first home. According to the U.S. Department of Housing and Urban Development, FHA borrowers are now permitted to apply the 2009 tax credit to the down payment above and beyond 3.5 percent of the appraised value or the borrower's closing costs.

What's the advantage in doing so? FHA home loans already have low down payment requirements compared to conventional loans, but using the 2009 First Time Homebuyer's Tax Credit means FHA borrowers could achieve lower interest rates as a result, saving money over the lifetime of the loan.

These advances and pro-home owner incentives are part of the reason origination of FHA loans has skyrocketed in 2009; they're also the reason why HUD is requesting even more money for next year's expected flood of FHA loan applications. Another reason for the increased interest in FHA mortgages? Conventional loans are harder to come by. Credit requirements and other issues connected with conventional loans make the housing market even more competitive; FHA home loans with their lower down payments and more forgiving credit requirements offer greater opportunity to get into that first home even in a stressed-out economy.

The U.S. Department of Housing and Urban Development is requesting authority to use up to $400 billion dollars in 2010, the equivalent of more than $2 million in loans. Compare those figures with FHA loan numbers from previous years; in 2007 lending volume was at a mere $60 billion. The requested $400 billion in FHA loan money for 2010 makes the 2007 numbers look positively anemic.

FHA Updates Rules on 2009 Tax Credit and FHA Loan Down Payments

The FHA issued a new policy on May 11, 2009 regarding the 2009 First Time Homebuyer's Tax Credit and down payments on FHA loans. For a time after the intitial press release from the Department of Housing and Urban Development, it appeared that home buyers interested in FHA mortgages could get a short-term "bridge loan" to let them take advantage of their 2009 First Time Homebuyer's Tax Credit. This would let FHA borrowers use the loan as a down payment on their homes. But since the initial May announcement, the rules have been revised again and much confusion was the result.

In short; the 2009 First Time Homebuyer's Tax Credit, known to some as the Obama Tax Credit or the Obama First Time Homebuyer's Tax Credit, lets those buying their first primary residence to get a tax break up to $8000. The tax break can only be claimed for purchases made in the 2009 tax year and is paid after the home buyer has filed an income tax return for 2009.

The first round of new FHA rules appeared to let banks offer bridge loans to borrowers so they could use their IRS money as a down payment on an FHA home loan. But further investigation into the rules uncovers a law forbidding banks from offering down payment assistance; these bridge loans could be interpreted as down payment assistance even though the loan is simply to cover the amount of an income tax refund the home buyer would get anyway.

Additional guidance was issued by the FHA at the end of May. The revised rules state FHA home loan applicants can still apply for these bridge loans, but the loans cannot be used to meet the FHA's minimum 3.5% down payment. The money can be used for other expenses or be paid on top of the required down payment; and putting an additional $8000 down on your FHA mortgage beyond the required 3.5% is a good thing. Imagine the reduced interest payments and the money saved over the lifetime of the loan. FHA loan applicants are also allowed to use the bridge loans to pay for closing costs, up front interest payments or other expenses related to closing the deal on an FHA home loan.

For FHA lenders and borrowers alike, May was a very confusing month, but the FHA seems to have sorted out the mess. The rules are clear now--bridge loans are permitted, but the FHA's required down payment must still come from the borrower's own funds. According to the Department of Housing and Urban Development's official site, FHA guidelines are designed to allow people interested in an FHA mortgage to cut their up front costs while requiring the borrower to have a personal investment in the property bought with an FHA home loan.

"In addition to the borrower's own cash investment," a press release at HUD.gov states, "FHA allows parents, employers and other governmental entities to contribute towards the downpayment. Today's action permits the first-time home buyer's anticipated tax credit under the Recovery Act to be applied toward the family's home purchase right away."

For more information on how to apply for a bridge loan towards your expected 2009 First Time Homebuyer's Tax Credit, ask your FHA-approved lender to explain the process.

Most lenders help you get your mortgage loan, and then leave you on your own. Your mortgage may even be sold to other companies, and you would never deal with your original lender again. The FHA stays with you for the life of your loan, and they can help you if you get in trouble. If for any reason you get to the point of default or foreclosure on your home, you should contact the FHA immediately. The FHA has programs that can help you retain ownership of your home in times of crisis.