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Fha Loans Lower Fees And Raise Acceptance
HA mortgage insurance
programs assist low and Several amendments have been made
moderate income families to the FHS in the nearly eighty
become homeowners by lowering years it has been a part of
some of the costs of their United States federal policy.
residential mortgage loans. FHA Most notable to these changes is
loans encourage mortgage evident in the 203(b) clause
companies to make loans to added in the 1980s which allows
otherwise creditworthy borrowers numerous advantages to the first
and projects that might not be time and disadvantaged home
able to meet conventional buyer.
underwriting requirements by
protecting the mortgage company In contrast to conventional
against loan default on mortgages mortgage products, which
for properties that meet certain frequently require down payments
minimum requirements. of 10% or more of the purchase
price of the home, single family
Today’s FHA program is the mortgages insured by FHA under
adaptation of the very same Section 203(b) make it possible
program which has helped save to reduce down payments to as
homeowners from default since the little as 3% . This is because
1930s. Today, One to Four Family FHA insurance allows borrowers to
Mortgage Insurance is still an finance approximately 97 percent
important tool allowed by the of the value of their home
federal government to expand home purchase through their mortgage,
ownership opportunities for first in some cases.
time homebuyers and other
borrowers who would not otherwise With most conventional loans, the
qualify for conventional loans on borrower must pay, at the time of
affordable terms. purchase, closing costs (the many
fees and charges associated with the federal government adapted
buying a home) equivalent to 2-3 what’s known as a ‘streamline’
percent of the price of the home. refinancing program. This refers
This program allows the borrower only to the amount of
to finance many of these charges, documentation and underwriting
thus reducing the up front cost that needs to be performed by the
of buying a home. FHA mortgage mortgage company, and does not
insurance is not free: borrowers mean that there are no costs
pay an up front insurance premium involved in the transaction.
(which may be financed) at the
time of purchase, as well as There are a few basic
monthly premiums that are not requirements to qualify for the
financed, but instead are added streamline option. The mortgage
to the regular mortgage payment. must already be insured by FHA,
the mortgage to be renewed must
Finally, FHA rules impose limits be current and paid on time to
on some of the fees that mortgage date, the refinance is to result
companies may charge in making a in a lowering of the borrower’s
loan. For example, the loan monthly principal and interest
origination fee charged by the payments, and no cash may be
mortgage company for the taken out on mortgages refinanced
administrative cost of processing using the streamline refinance
the loan may not exceed one process.
percent of the amount of the
mortgage. Companies may offer streamline
refinances in several ways. Some
Along with a renovation of the offer “no cost” refinances
FHA regulations during the 1980s (actually, no out of pocket
to accommodate for an expenses to the borrower) by
ever-evolving real estate market, charging a higher rate of
interest on the new loan than if
the borrower financed or paid the Once you do, or if you have ever
closing costs in cash. From this fully paid off a home backed by
premium, the company pays any FHA, you may be owed back
closing costs that are incurred compensation from the government.
on the transaction. About 1 in 10 FHA borrowers leave
money in their escrow accounts
Also, companies may offer when they pay off their loans.
streamline refinances and include The average refund for each
the closing costs into the new borrower is about $700.
mortgage amount. This can only be
done if there is sufficient In addition to the more standard
equity in the property, as mortgages available in this
determined by an appraisal. program, the federal government
Streamline refinances can also be has also allowed for more
done without appraisals, but the creative forms of home owners who
new loan amount cannot exceed could qualify, at least in part,
what is currently owed, i.e., from FHA funding. For example,
closing costs may not be added to FHA’s energy efficient mortgage
the new mortgage with those costs program provides mortgage
either paid in cash or through insurance for a person to
the premium rate as described purchase or refinance a principal
above. Investment properties residence and incorporate the
(properties in which the borrower cost of energy efficient
does not reside in as his or her improvements into the mortgage.
principal residence) may only be The FHA mortgage loan is funded
refinanced without an appraisal by a lending institution, such as
and, thus, closing costs may not a mortgage company, bank, savings
be included in the new mortgage and loan association and the
amount. mortgage is insured by HUD.
labor union or charitable
One of the most enjoyed benefits organization. Contact your local
of the FHA, though, is that the branch for complete information.
down payment for an FHA mortgage Additionally, proof of initial
can be 100% gift funds. deposit is required.
Verification of the source of
gift money is not required to The Federal Housing
benefit from this particular Administration is one of the most
aspect of the legislation. successful government programs in
However, it is necessary that the American history and over the
gift funds be deposited in the decades during which the program
borrower's bank or savings has been in existence, thousands
account, or in an escrow account, upon thousands of home owners
prior to underwriting approval. have been able to procure the
Gift donors are restricted home of their dreams when it may
primarily to a relative of the not have been possible otherwise.
borrower. They can also be
certain organizations, such as a
About the Author:
Gary Carraghan is a successful author and regular contributor to http://www.super-mortgages.com who provides money-saving tips on mortgages. More information on similar topics can be found at http://www.super-mortgages.com/Residential-Mortgage-Loans.html . Webmasters: Above hyperlinks must be kept intact.
Read more articles by: Gary Carraghan
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