FHA Home Purchase LoansThe Federal Housing Administration (FHA) was created by the National Housing Act of 1934. The primary purpose of which was to increase home ownership and reduce unemployment. FHA makes home mortgages available to borrowers who would otherwise not qualify for a conventional mortgage. Not all banks and mortgage lenders offer FHA Loans. In order for a lender to offer an FHA home loan, that lender must have a direct endorsement and go through a rigorous HUD approval process. People commonly assume the FHA offers loans directly. In reality, The Federal Housing Administration or “FHA” insures the loans for approved FHA lenders in order to improve housing standards and conditions. The FHA does not make loans, nor originate and build homes. FHA insures the loan against the possible future default of the borrower on the loan.
FHA Loan Programs
- Section 203(b) – FHA’s 203(b) is the basic mortgage loan program that everybody knows. If a person mentions that his last house was financed by FHA, chances are, he’s referring to the FHA 203(b) program. FHA provides the mortgage insurance coverage for anybody who wants to purchase or refinance a primary residence. The home loan is funded by the lending institution, such as a mortgage company, a bank, or any lending entity approved and insured by HUD.
- Section 203(h) – Commonly known as the Disaster Victims Loan Program because the program insures home loans originated by lenders to victims of a major disaster. Those who have lost their homes and are in the process of rebuilding or buying another home can avail of this program. Once the Federal Government declares the area as a “designated disaster area”, the homeowners in that particular area automatically qualifies for the 203(h) program.
- Section 203(k) – This program combines and finances both the purchase price of the house plus the cost to rehabilitate the property, in a single mortgage. The property must be at least a year old and must fall within the FHA loan limit for the area. To learn more about FHA section 203(k) loan program, follow this link.
- Section 248 – Also referred to as the “Indian Reservations and Other Restricted Lands” program, the section 248 home loan is offered to borrowers looking to buy properties in such designated areas. The borrower must meet the credit loan requirement for FHA loans and if they do, they can buy an existing home or build a home under the program. The financing can be as much as 97% of the purchase price, so the borrower only needs 3% down payment.
- Energy-Efficient Mortgage (EEM) – The FHA helps borrowers and homeowners to finance the cost of installing a new solar energy system for their home. The full cost of a new solar photovoltaic array can be added to the home loan at the time of purchase or refinance. Additional information about the FHA’s Energy Efficient Mortgage program, click here.
- Home Equity Conversion Mortgage (HECM) – also known as Reverse Mortgage. A Reverse Mortgage is reserved to homeowners who are at least 62 years or older, and have paid off their mortgage or paid down most of it. The program allows a homeowner to withdraw a portion of the home’s equity as cash on hand. To qualify, a borrower (or the youngest, if there are 2 borrowers) must be at least 62 old, must own the property, occupy the property as their primary residence, not delinquent on any federal debt, must have financial resources to maintain paying the property taxes, insurance and the upkeep of the house.
The FHA home loan program helps low- and moderate-income households realize their dream of home ownership by lowering some of the costs associated with their loans. They also encourage lenders to extend loans to otherwise credit-worthy borrowers, who may not be able to meet the requirements for conventional loans. By protecting the lenders against default on the loan through the mortgage insurance premiums, the mortgage companies or banks can have a peace of mind knowing they will not lose anything even if the borrower defaults on the loan.
For additional information about FHA loans, contact our FHA Specialists or use the forms on this site.