FHA Refinance Assistance for Equity Challenged Homeowners

This article is about the FHA refinance options for people with non-FHA loans seeking to refinance with FHA with a no cash out mortgage.

Given the slump in the housing market in recent years and the meltdown of the sub-prime mortgage industry conventional home loan lenders are presuming to lend out more conventional mortgage products such as the fixed rate mortgage loans. However, the requirements for refinancing with conventional mortgage lenders are tighter than they have ever been before. With the results that the Equity and credit challenged homeowners find it difficult to find a suitable mortgage refinance loan.

The FHA offers a solution for refinancing for those homeowners who have little or no equity in their homes.

Here are the general requirements And guidelines for an FHA refinance for non-FHA mortgage with no cash:

  1. You cannot refinance for an amount greater than the FHA mortgage lending limit applicable in your state and county.
  2. You can refinance to a lesser amount of 97.75% of your not FHA mortgage or hundred percent of your home’s current appraised value including any financed upfront mortgage insurance premium.
  3. Your mortgage loan must be kept current throughout refinance process.
  4. You may not receive more than $500 back at closing.
  5. At least one of the borrowers on the record of the conventional mortgage is a resident of the property.

Complete Guide To FHA Home Loans

What Are FHA Home Loans

FHA home loans have been around since 1930s. FHA home loans is a federal government plan, created with the intent of assisting home loan borrowers to get home loans at reasonable terms.

The FHA home loans have been somewhat more targeted to the middle income bracket of borrowers and have helped them secure a home loan in spite of the lack of a stellar credit rating and the ability to make a large down payment on the home loan.

The FHA does not give out home loans on its own. It insures the loans that are given out by its HUD approved lenders across the length of the country. FHA home loans are available from the FHA approved lenders to all those home loan borrowers who meet the qualification criteria.

By saying that the FHA only ensures the loan given out by its approved lenders it means that the FHA places are guaranteed on the home loan to repay the mortgage lender the entire amount of the mortgage loan in case the borrower happens to default.

For the purpose of ensuring a home loan the FHA charges an upfront insurance payment as well as a monthly insurance payment (MI). Currently these are chargeable at the rate of 1% and .5% to .55% respectively.

In this manner the FHA provides affordable financing is to homeowners across the nation and thereby stimulates housing markets and community developments.

The demand for the FHA home loans decreased substantially in the 1990s as the prices of houses increased while the borrowing limit on the FHA home loan remained rather modest. Given the boom in the housing market many mortgage lenders developed many more enticing and attractive home loan products which became more appealing to the borrowers than the FHA home loans. Any mortgage lenders use in the qualification criteria and began offering hundred percent financing qualified buyers.

In the recent times the popularity of the FHA home loans has grown again since the slump in the housing market. Since the sub-prime mortgage market has almost disappeared FHA home loans have again found the appeal to people who have less than stellar credit and are unable to make large down payments.

FHA home loan also have an appeal to the average income group as the requirements and paperwork are done according to the FHA guidelines. This offers more security to the borrowers. Lenders can also find themselves more inclined to deal with the FHA because there lending is guaranteed by the FHA and they are insured against losses.

FHA home loans are assumable so selling the home in the future could be a lot less hassle for the seller, the buyer and the lender.

The borrowing limits that were applicable on an FHA loan at the end of the year 2010 were equal to those applicable on Fannie Mae or Freddie Mac loan. For the single family house this limit range from $271,050 to $729,750 for those 76 counties which were considered to be high priced real estate areas.

Loan limits on a 2 to 4 family house are even higher. On a reverse mortgage or what is also known as HECM the maximum amount that could be borrowed was raised to $625,500.

Understanding the FHA Insurance Costs

All the FHA mortgage loans are associated with a insurance cost that is peculiar only to FHA loans. 

The FHA typically takes on a higher risk by accepting borrowers with a lower credit score and a lower down payment. This means that borrowers who are considered to be a high risk by other conventional lenders can potentially qualify for an FHA home loan. 

Secondly, the amount of down payment required in a conventional home loan is 20%. If the borrower is paying anything less than 20% and he is almost always required to purchase Private Mortgage Insurance.

However, an FHA home loan allows a borrower to make a down payment as less as 3.5% to 10%. 

By charging a much lower down payment than a conventional loan the FHA is again undertaking a larger risk because it is usually believed that people with a lesser investment in the property will be more likely to abandon the loan when hit by a hardship.

Therefore, the FHA passes on some of this risk to its borrowers by means of charging an insurance payment. FHA is an institution that is self sustained and does not burden the taxpayer within the defaults that it faces within its borrowers.

The FHA charges insurance payment on two different counts. First, an upfront mortgage premium at the time of closing. This is known as the upfront mortgage insurance payment. The borrower then continues to pay insurance premiums at a fixed annual rate which are payable on a monthly basis.

Effective for loans on or after October 4th, 2010, for FHA regular purchases and refinance products, the Upfront Mortgage Insurance Premium is 1.00%, which is a decrease from 1.5%

The Monthly Insurance Premium on loans with less than 5% down payment increases from .55% to 1.55%/annum.

Is The FHA Insurance A Disadvantage?

The fact of the matter is that the upfront mortgage premium is almost always rolled into the original cost of the loan. So at the time of the closing of the loan the borrower does not have to pay anything extra. So in all fairness, the upfront mortgage premiums payment will not make an FHA loan more costly to the borrower.

The monthly insurance payments are calculated on the loan amount excluding the upfront mortgage insurance premium.

For example on an FHA flown amount of $200,000 for a monthly insurance premium rate of .5% the yearly premium will be $1000.

When this is divided into 12 monthly payments the amount comes to $83.33. This amount will be added to your monthly mortgage amount.

Whether or not this is a disadvantage for you will depend on several things :

  1. Are you able to qualify for a conventional mortgage through a private mortgage lender? If not, FHA might be your only option because it is less strict with credit rating guidelines and downpayment requirements.
  2. If you are making less than 20% downpayment, how does the private mortgage insurance compare to the FHA insurance payments. Is it more costly?
  3. Are you going to save money on the FHA home loan, despite the insurance payment, due to a lower interest rate on the loan as compared to a private home loan lender?

Answering some of these questions will make a lot more clearer whether the FHA insurance payment are indeed a dissuading factor when it comes to choosing the FHA to fund your home buying.

How To Get an FHA Mortgage

As mentioned before the FHA does not provide home loans directly but only ensures the home loans. In order to obtain an FHA home loan you first needs to find an FHA approved home loan lender.

The FHA has a list of lenders that it has approved across the length and breadth of the country. These lenders have to ability to process an application for an FHA home loan. If the borrower meets the FHA guidelines, these lenders can approve an FHA loan for the borrower.

However, it should be noted that even though the mortgage lender may be approved by the FHA they can set up their own rates and terms to the borrowers.

Different FHA home loan lenders may have different closing costs and terms and conditions. For this reason it is important to shop around with more than one FHA mortgage lender to find the best option for your FHA approved home loan.

Eligibility Requirements Of An FHA Home Loan

Requirements for an FHA home loan are usually less stringent and strict than a conventional home loan, at least in the current housing market scenario.

Credit Score Requirement

The FHA home loan eligibility criteria does not require the person to have the best credit score possible in order to qualify. More than the credit score of a person than approval process for an FHA home loan is dependent upon the proof of ability to meet future mortgage monthly obligations by the borrower.

A person with a medium credit score, who could not qualify for a conventional mortgage in the current market circumstances, may find that he is alleged to for an FHA home loan. It is possible to work with an FHA mortgage lender with a credit score that is 580 to 620. It may be even possible work with an FHA mortgage lender with lower credit ratings or when a person does not have a credit rating at all.

Income Proof Requirement

As mentioned before, the FHA is tolerant of less than stellar credit scores. The credit scores that might disqualify your application with conforming loans can still be acceptable to FHA lenders.

However, what is used as a compensating factor for a sub standard credit rating is the income proof as well as proof of other savings and assets that is convincing enough to warranty the approval of the FHA home loan. Even if the FHA guidelines are not so concerned with the credit score of a borrower, they are concerned with the proper documentation of the sources of income to prove that the borrower is in a position to make the payments on the mortgage in the future.

Requirement of the Loan Amount

There was a time when the limits set on FHA home loans was so low that many borrowers found that it was insufficient to meet the housing costs in a lot of residential areas. However, since then the limits have been raised to be made equivalent of conforming loans from Fannie May.

When choosing an FHA home loan is the borrowing limit set by your particular state and county location. Different countries have different borrowing limits set by the FHA depending upon whether the area has been classified as a high cost, low cost or a median cost. You can find the limit in your area by contacting your FHA mortgage lender by visiting the website of the Department of Housing and Development. If the cost of the home meets the limits in your area, then you qualify for an FHA home loan on this point at least.

Insurance Requirements for FHA

One more requirements of an FHA home loan is the payment of insurance premiums. Getting approved for an FHA, requires an affront mortgage premium payment of 1% and a monthly premium payment that ranges from .5% to .55% chargeable on an annual basis but payable monthly.

All FHA borrowers are supposed to pay this cost. This is one way in which the FHA passes on the risk of their lending to the borrowers themselves. Since the FHA insures the loans that FHA lenders give, the lenders have a guarantee that the FHA will pay them for their losses in case the borrower defaults on the loan. The insurance payments give overall benefits since they cover FHA costs for borrower defaults and allows the lenders to consider the borrowers with low down payment and less than perfect credit for a home loan.

Downpayment Requirement 

Since the update made on the down payment requirements of an FHA home loan in 2009, the borrower needs to make a minimum down payment of 3.5% only. This down payment amount can increase to 10% based on other factors such as the credit rating and credit history of the borrower.

This makes the FHA home loan down payment requirements different from a conventional and can make home loan which can require anything up to 20% of the loan value as down payment in order to get the best interest rates and to avoid the private mortgage insurance.

FHA Home Appraisal Guidelines

An FHA home loan requires that the property under question should be appraised and meets certain requirements in terms of its state of health. Many consumers have mistaken this to mean that the FHA protects them from defects in the property that they purchased.

This is not true. The fact is that the FHA does not guarantee the value or condition of the home that the consumer buys. FHA appraisals of the property are meant to protect the FHA themselves and other homebuyers are required to protect their interests by ordering a separate and individual home inspection.

Imminent Default And FHA HAMP Program

The FHA has been making constant efforts to help those homeowners who are facing foreclosure on their homes. The FHA lays down certain guidelines for a homeowner to qualify for their foreclosure prevention programmes. One of the parameters of their guidelines is called “Imminent Default”.

In order to qualify for one of the FHA foreclosure prevention programmes you first need to understand what Imminent Default means.

Here are the requirements for qualifying for an FHA programme due to an Imminent Default.

  • You have a home loan insured by the FHA.
  • Your mortgage payments have stayed current or are less than 30 days past due.
  • You are able to document the reason for financial hardship or any other hardship that is preventing you from making the next mortgage payment.
  • The reason for facing financial hardship is loss of income, loss of job, reduced working hours, reduction in business, loss of income from self-employment. Scheduled leaves and temporary work stoppage is not considered to be a hardship according to the FHA guidelines.
  • There has been a change in your personal circumstances such as a serious or chronic illness, a debilitating injury, a temporary or permanent disability or death in the family.

You will be required to provide your current lender with documented proofs of your eligible hardships and will need to apply for assistance in writing. You may also be required to give detailed financial information regarding your current sources of income and your current outstanding debts such as credit cards, other loans and debt obligations.

Loss mitigation options for People Facing Imminent Default

People who can qualify for the imminent default clause according to the FHA guidelines are able to get the forbearance on their mortgage payments for up to 3 months and can also make an extended agreement for forbearance up to 6 months. The period of forbearance will be decided by the lender based upon the borrower’s circumstances. During the period of forbearance when the mortgage payments are temporarily stopped the borrower will be required to work towards resolving their financial difficulties so that they can resume making the mortgage payments after the forbearance period is over.

Home Affordable Modification Programme (Hamp)

Eligible borrowers may also be offered a modification on your home loan through the FHA Hamp program. There is a trial period involved for all Hamp modifications during which the borrower is required to provide all necessary documentation. If the documentation is approved the modified mortgage terms then become permanent.

The ultimate success of a home affordable modification programmeor a loss mitigation program through the FHA will depend upon your competition with your mortgage loan lender and being able to provide the required documentation and information. Ultimately the decision to qualify you for a loss mitigation program through the FHA rests with the mortgage lender. Your willingness to co-operate with the lender and your lender’s willingness to accept your situation will determine the outcome.

How to Short Refinance through the FHA

A short mortgage refinance through the FHA could be an option to a short sale.

A home owner may find himself in a situation where the value of his home is less than what he owes on his current mortgage. A short refinance through the FHA will allow the home borrower to refinance up to 96.5% of the current value.

This allows the homeowner to continue to stay in his house and make mortgage payments that reflect the current home value.

In order to take advantage of a short refinance, your current lender has to be agreeable to writing off any mortgage debt in excess of the amount you refinance.

In order to qualify for a short refinance through the FHA, there are certain guidelines that you need to comply with.

1) There must be no late payments on your current mortgage and the loan must continue to remain current during the process of refinancing.

2) The current lender must agree to except the proceeds from the FHA is full and final payment and agree not to pursue the FHA or you for the recovery of any remainder amount. He must execute a non-recourse agreement stating that they will not pursue a deficiency judgment against you.

3) You will need to order a professional appraisal to determine the current value of your home.

4) You must qualify for refinance according to the FHA guidelines.

The FHA the mortgage lender will require documented proof of financial hardship. This documented proof need to imply that imminent default on the mortgage is due if the mortgage is not refinanced to better terms. The following documents may be required:

1) a signed letter stating your circumstances of financial hardship and the reasons for requesting a short refinance.

2) Copies of pay stubs or itemized deposit advice for the most recent months for as far as up to 6 months.

3) Copies of bank statements are past 3 to 6 months.

4) Documentation of all income and debt obligations such as credit card debt, other loans etc.

5) Copies of income tax returns for past three years.

The drawback to a short refinance is a possible hit to your credit score. Check this with your lender and whether he will be reporting a ‘settled’ debt to the credit agencies.

Borrowing Limits On the FHA Home Loans

The borrowing limits on FHA home loans for the year 2010 have been announced. The limits set on the amount borrowed can borrow on the FHA loan is dependent upon the local and regional housing market limitations and prices. FHA home loans or available throughout the United States of America and the pouring limits are determined by the County of residence.

The basic borrowing limit on an FHA home loan has been set to the same limit as a confirming Fannie Mae or Freddie Mac national home loan. This amount is set at $417,000. However since FHA guidelines provide for relations according to low-cost and high-cost regions, there are certain floor and ceiling rates that might come into play in your area of residence.

Understanding floor and ceiling borrowing limits on FHA home loans.

Certain areas that are considered to be low-cost areas where the building cost is lower than the rest of the country are assigned a maximum FHA borrowing limit of 65% of the Fannie Mae confirming limit of $417,000. This is known as the floor limit and represents the lowest maximum amount that can be borrowed in these low-cost areas. This will enable borrowers to buy a relatively expensive for in a low-cost area using an FHA home loan. These are the borrowing limits prescribed in the low-cost areas according to the size of the home.

One unit home – $271,050

Two unit home — $347,000

Three unit home — $419,000

Four unit home — $521,250

Other areas that are considered to be high cost similar limits had been assigned.

One unit home — $729,750

Two unit home – $934,200

Three unit home — $1,129,250

Four unit home — $1,403,400

The loan limits offered by the FHA in areas such as Alaska, Guam, Hawaii and the Virgin Islands or even higher due to the higher construction costs. These loan limits surpasses the limits set in the “ceiling” category and are referred to as “the roof”. These are the roof limits in these high cost areas.

One unit home — $1,094,625

Two unit home — $1,401,300

Three unit home — $1,693,875

Four unit home — $2,105,100

Most of the FHA borrowings have limits that fall between the ceiling and floor. You can check the local borrowing limits on an FHA long in your area by consulting an approved FHA lender or by checking online here https://entp.hud.gov/idapp/html/hicostlook.cfm.

FHA Limit on Reverse Mortgage

The maximum borrowing limit on a reverse mortgage through the FHA is set at $625,000 and depends on certain other factors such as equity in the home and the homeowners age. Reverse mortgage through the FHA is known as the Home Equity Conversion Mortgage Program (HECM).

FHA Loan Financing for Good Neighbors (GNND)

FHA offers home loans “Good Neighbors Next Door” program (GNND Program) for qualified civil servants like firefighters, police officers and teachers.

The Federal Housing Administration offers affordable financing to qualified firefighters, emergency medical technicians, police officers and teachers (pre-K Grade12) who wish to purchase a home. This program is offered by HUD under Good Neighbors Next-Door Program (GNND).

This program works in two ways. First of all it helps the FHA dispose of the single property homes (Real Estate Owned Properties – REO) that they acquire through the defaults by the FHA home owners and secondly it helps the growth of neighborhoods that require enhancement and inception of responsible citizens by providing affordable housing to “good neighbors” such as firefighters, police officers and teachers.

How GNND Program Works

1) When owners of FHA loans default, the lender submits the title of the property with the FHA to be reimbursed for the remaining amount on the mortgage. After the claim from the lender is settles, FHA makes the necessary repairs on the home and takes on the title of the property. The property then comes in the ownership of the FHA and is known as Real Estate Owned Property or REO. This property is then put up for sale of the FHA through its network of approved mortgage brokers. The FHA also makes some of these properties in certain areas available to qualified firefighters, police officers and teachers at a discount. This helps the FHA reduce its mounting inventory of REOs and provides impetus to growing neighborhoods by inculcating responsible citizens and “good neighbors”.

2) The homes eligible for Good Neighbors Next Door program can be found through local real estate professionals and FHA approved mortgage lenders.

3) Eligible public service employees can purchase forms under the GNND program at prices up to 50% less than the listed prices with extremely favorable interest rates and terms.

4) The mortgage payment on the home purchased under the GNND program are essentially very low. The borrowers are also required to sign on a second silent mortgage which covers the discounted amount of the mortgage. This mortgage is not payable to the time that the home is sold or borrow or otherwise retires the first mortgage or vacates the property purchased through the GNND program.

FHASecure Plan for Defaulted Subprime Homeowners

FHA Launches FHA Secure Plan to Rescue Defaulted Sub-Prime Borrowers

The FHA has announced new policies to cater to the multiple sub-prime mortgage loan holders who have defaulted on their loans and are now using foreclosure. This program is called FHA secure plan and is tailored to meet the needs of the holders of adjustable rate mortgages who have defaulted on their mortgages owing to the increase in their mortgage insurance monthly premiums.

Under the FHA secure plan even the home buyers who are now in default of the mortgage payments by several months will be able to revive their mortgages by refinancing through the FHA secure program.

Borrowers who are late by several months on their mortgage payments will be able to take advantage of this program provided that they can prove the fact that the delinquency on their mortgage is due to the incremental increase of the monthly mortgage payment. These home buyers will need to have been current and regular on their mortgage payments before the increase in the interest rate happened between a period of June 2005 and December 2009.

In order to qualify for the FHA secure loan the homeowner must:

  1. Offer 3% of the loan value in cash or homeowners equity.
  2. Have a sustained history of employment.
  3. Prove sufficient income to make the mortgage payments in the future.
  4. Have a good credit history in the past prior to the increase in the mortgage interest and premium payment.
  5. Should have made regular payments on the mortgage before the increase in Monthly mortgage payment.

The FHA secure plan will come to the rescue of many homeowners specially the ones who are holders of sub-prime mortgages over unable to continue making their monthly mortgage applications as there are interest rate double or triple after the initial promotional rates were over.

9 Reasons Why An FHA Loan Is Right For You

FHA home loans are a good option for many people who find themselves under a particular set of circumstances. Here are 3 basic points why FHA loan may be an attractive option for you.

Conforming Loan Limits

People got discouraged from taking FHA loans when the loan limits could not keep up with the price of buying a home in some areas. However, as of now, these limits have been raised and now FHA home loans, in most counties, conform to the limits set by Fannie Mae or Freddie Mac. There are also certain areas which are designated to be high cost of low-cost and your borrowing limit on the FHA home loan will depend upon this as well.

So it is more than probable that you will not have a problem with the amount of loan that you want to qualify for with the FHA.

In order to know the limit you can borrow on an FHA home loan in your area currently refer to this page on the website of Housing and Development. https://entp.hud.gov/idapp/html/hicostlook.cfm

Relaxed Credit Requirements

An FHA home loan provides loans to people who have less than a shining credit rating. Borrowers who might not qualify with conventional conforming loans with other banks because of their credit rating may find is that they are eligible for an FHA home loan. While in most cases it is required that you have a credit history you may be allowed to apply for an FHA home even if you do not have a credit history.

This is a great advantage for people who do not have an exemplary credit score but can easily afford a mortgage loan. FHA does not get too hung up about credit requirements as long as you can show your ability be make the payments in the future.

You should consult your approved FHA mortgage lender for more details.

Mortgage Insurance Payments

FHA home loan is guaranteed by the federal housing administration to the lender. The guarantee that they will pay back the money to the lender in case the borrower happens to default. This is what makes lenders consider people with less than perfect credit rating.

The FHA mortgage premium payment allows you to qualify with a much lesser downpayment, as low as 5% and is usually cheaper than the Private Mortgage Insurance, PMI, that will be charged in a conventional mortgage loan whenever the borrower makes less than 20% downpayment.

In order to consider this risk in their lending all FHA home loan borrowers are required to pay mortgage insurance premium.

1% of the value of the loan needs to be paid upfront as the first premium payment. This payment is called Upfront Premium Payment. From there on you will pay the annual mortgage insurance which is to be paid monthly and is charged at an annual rate of .85% to .9%. You need to pay this insurance premium on your FHA home loan for a period of five years even if you have a built up equity of 20%.

FHA Loan Variations

FHA home loans are created with simple purpose of making a home available to people who otherwise might not be able to qualify using conventional lenders. FHA home loans are available to homeowners and occupants who intend to make a long-term commitment to owning a home. The FHA home loans are not available to investors and flippers.

What many people are not aware of is that the FHA also offers loan programs like Streamline Refinance, Adjustable Rate Mortgage, Cash Out Refinance and 203k Fixer Loans. This makes FHA a good choice for different home financing needs.

Low Down payment

An FHA home loan has a great appeal to those borrowers who cannot make a large down payment on their mortgages. Gone are the days when conventional mortgage lenders were offering 100% financing to the home loan borrowers. That kind of thing is almost unheard of these days in the current housing market. The usual down payment required is 20% if you want to avoid paying for Private Mortgage Insurance.

An FHA home loan allows you to make a down payment for as less as 3.5%.

Less Strict requirements

The FHA goes more easy on requirements like a high credit score. It pays more stress on the ability of the borrower to make the payments in the future. For this reason an FHA lender may be willing to work with a borrower with a credit score that is down in the 500’s. This is a great benefit as the market for subprime mortgages is more or less non-existent now.

Personal Underwriting

The FHA guidelines state the requirement of manual underwriting of the FHA home loan. This means that there is room for negotiations and explanations in situations that are unusual. If a person would tend to get rejected automatically on the basis of his credit score, he may qualify for an FHA home loan during the underwriting process by getting a chance to offer a bigger down payment or his assets as a collateral.

Less Punishing More Liberal

An FHA home is available to people who declare bankruptcy more than two years back provided that they have maintained a good credit history during that time period. FHA loan is also available to people who faced a foreclosure home their homes more than three years back.

An FHA home loan also usually does not have any surprise elements like the interest rate increases or prepayment penalty clauses. Hence it is a safer option for home loan borrowers and is devoid of unpleasant surprises.

All About FHA 203k Home Loan

203k are home loans provided by the Federal Housing Administration that allows you to roll up the cost of purchasing the home as well as the cost of conducting repairs and certain cosmetic jobs into a single loan.

As most of you will be well aware, taking an FHA home loan is a good way to keep your interest rate low. FHA home loans also are available to people whose credit rating is less than shining.

203k FHA home loans are also known as rehab or fixer loans and the one obvious advantage of a 203k FHA home loan is that you can save on the hassle, paperwork and the time involved by taking a single loan for both the purchase of the home as well as for any improvement projects rather than taking separate loan to purchasing a home and then taking another one for repairs and cosmetic jobs.

Advantages and Disadvantages of 203k FHA Loan

  1. As mentioned before taking a 203k FHA loan allows you to keep your interest rate low and save on time, effort and hassle by rolling two different loans, one for the purchase of the home and the second to conduct repairs and improvements, into one single loan. 
  2. It is also possible for a person who does not have an excellent credit rating and who might not qualify for a conforming loan with a regular bank to qualify for an FHA home loan as their criteria for approval is a little less strict. Since the 203k FHA loan is guaranteed by the FHA the lender might feel more taking the risk.
  3. However there is a flip side to taking a 203k FHA loan as well. You need to understand that a 203k loan might take longer to process than a conventional loan. 
  4. Like any other home loan there are certain costs and guidelines associated with the FHA 203k home loan. For example before you can qualify for the 203k FHA home loan you might have to conduct certain repairs on the house, even some that you never intended to get approval for.

You should expect to close on a 203k FHA loan within 45 to 90 days.

 The 203k FHA loan is designed for properties that constitute one to 4 units. However owners of condos and town homes can use the program for interior projects.

The maximum amount of loan that you can borrow on an FHA 203k depends upon your location and whether it is classified as a highly expense or low expense territory.

However, the maximum that you can borrow on an FHA 203k is up to 110% of the homes projected value after the improvement.

The minimum that you can borrow is $5000. In this sense the FHA 203k loan differs from the streamlined FHA 203k because you can borrow a lesser sum of money for minor repairs and up to a maximum of $35,000. The funds for improvements put into an escrow account and are paid out as the work is completed.

Here are some more salient points:

  1. The repair work for 203k FHA loan must start within 30 days of the closing of the loan and must finish within six months. There is a certain amount of leeway provided in the loan amount just in case the projects come to cost little more than expected.
  2. However, the borrower cannot access any more funds beyond this surplus that is provided for in the contract.
  3. 203k FHA loan also requires that you provide an estimate of the repairs and improvements to be conducted on the house from an approved and reputable contractor when applying for the loan. 
  4. 203k FHA loans are only available to owners, occupants and non-profit organisations. 
  5. A 203k FHA loan can be a fixed rate mortgage or a variable rate mortgage and you can expect the interest rates to be slightly higher than a traditional mortgage loan.

The Costs of a 203k FHA Loan

As in any other kind of mortgage the 203k FHA loan has its own set of costs and fee structure. 

  1. First of all, there is a certain amount of down payment to be considered. This down payment usually ranges from 3.5% to 10% depending upon the credit rating of the borrower. 
  2. Apart from the down payment you will also be required to make a down payment on the insurance of the loan.
  3. There are also additional fees such as the processing fee, application fee etc which are common to any mortgage loan. 
  4. You may have to incur specific costs for 203k loan such as the cost of getting the home appraised and getting an estimate from an approved lender for the repairs and the cosmetic jobs required on the home. 
  5. An approved consultant may be required to review your plans before approval and to inspect the work as it is being completed.
  6. The lender may also charge of supplemental origination fee which will be 1.5% of the loan value or $350 whichever is higher.

203k Mortgage Insurance Costs

Effective for loans on or after October 4th, 2010, for FHA regular purchases and refinance products, the Upfront Mortgage Insurance Premium is 1.00%, decreasing from the previous rate of 1.5%

The Annual Mortgage Insurance Premium (MI)

As of October 4th, 2010, loans with a down payment equal to or greater than 5% will be charged at .85% and loans with a down payment of less than 5% will be charged .90%.

FHA 203k Interest Rates

You can expect the interest rate on an FHA 203k home loan to be slightly higher than a conventional loan. You will probably pay a higher interest rate by about 1% so. This means that you will pay a lot more money over the entire tenure of the loan.

However, since people whose credit is less than perfect can defy for an FHA 203k, the interest rate that such people get may still be better than what they get from a conventional mortgage lender who might charge a higher interest rate owing to the higher your credit risk presented with what he might consider to be a sub-prime credit rating.

Confirming to 203k FHA Loan Standards

When applying for a 203k FHA loan you should be ready to undertake any repairs and jobs that the loan requires you to form in order to comply with the safety standards and guidelines of a 203k loan. This may include replacing faulty electrical wiring, removing lead paint etc.

Sometimes you may have to undertake repair jobs that you might not have intended to undertake talk in order to comply with the guidelines and conditions of a 203k FHA loan approval process.

Streamlined 203K FHA Loan

For smaller projects you might want to consider using a Streamlined 203k FHA loan which allows you to borrow any amount up to a maximum of $35,000 since the process is less competitive with less paperwork and less strenuous approval process.

Buyers sometimes pass up buying a home due to the amount of repairs that may be required. Even though they might be getting a good deal on the purchase the amount to be spent subsequently on the repairs may be beyond the financial limits of the buyer. The streamlined 203k loan allows a home buyer to conduct repairs on a home for up to $35,000.

The FHA streamlined 203k loan is different from the 203k program which is somewhat more complicated. The streamlined 203k FHA loan is easier and simpler on the paperwork as well as procedure.

In a typical scenario a person buys the home on a mortgage and then looks at a secondary mortgage or in equity line to bring about repairs in the home.

The problem arises when there is no real equity in the home and the lender refuses to make a rehab equity home loan. A streamlined 203k loan may be the solution.

Repairs eligible for the streamlined 203k FHA loan?

All kinds of simple repair work and light cosmetic repairs are allowed under the streamlined 203k FHA loan. Apart from this the following kinds of repairs are also included in this program:

a) roofs, gutters and downspouts.

b) Heating, venting and air-conditioning systems.

c) Plumbing and electrical work.

d) Minor kitchen and Bath remodeling.

e) Flooring, carpets, tiles, woodwork etc.

f) Painting for the interior and exterior of the home.

g) New windows and doors.

h) Whether stripping and insulation.

i) Making provisions for persons with disabilities.

j) Improvements for energy efficiency.

k) Stabilising or removing lead-based paints.

l) Decks, patios and porches.

m) Basement completion and waterproofing.

n) Septic or well systems.

o) Purchase of new kitchen appliances such as washer, dryer etc.

Repairs Not Permitted Under the Streamlined 203K FHA Loan

a) Landscaping and yard work.

b) Major remodeling.

c) Moving the load-bearing wall.

d) Addition of rooms as well as other add-ons.

e) Fixing structural damage.

Disbursement of Payment

A maximum of two payments to each contractor including the borrower himself when he is working under the self help plan are made.

These payments are restricted to a maximum of 50% of the loan amount. When working under the do-it-yourself plan cost of labour is not included and only the material cost is paid for.

The final payment is dispersed after proof of payments to contractors, subcontractors and suppliers as well as other claimants is provided.

FHA HOPE For Homeowners Refinance

What is HOPE for Homeowners Program and how it can help you refinance your mortgage through FHA. What is HOPE for Homeowners Refinance Program?

HOPE for Homeowners is a legislative act signed in to by the Bush Government on July 30th, 2008. it is supposed to end on 30th September, 2011.

This programs allows a person to refinance their current mortgage through the FHA for up to 93% of the current home value provided that the borrower meets certain conditions.

It was created to aid the teeming homeowners who were facing the dilemma of owing more on their mortgage than what their homes were worth. In many cases such borrowers were looking at foreclosure.

HOPE for Homeowners gave the chance to these borrowers to refinance their mortgage at 93% of the current value through a lender that was willing to participate in the federal program.

The FHA was not underwriting these loans, as it never does, but like always, guaranteeing it.

How Does Hope for Homeowners FHA Refinance Work

HOPE for Homeowners program is meant to people whose home values have fallen drastically below what they owe on their mortgage. For example, the person who purchases a home for $500,000 may find that his home is only what $300,000 after the mortgage crisis. This would usually not pose to be a great problem if a person continued to make payment this before on his mortgage. But the reality is that in many of these cases the borrower begins to find difficulty in meeting the mortgage payments as before and risks the possibility of foreclosure. From the viewpoint of the lender key is possibly looking at a short sale and a financial loss. The hope for homeowners refinance program through the FHA is meant to offer both a solution to the borrower to avoid foreclosure and an incentive to the lender to participate in this program.

The HOPE for Homeowners FHA refinance program allows the borrower to refinance his mortgage at 93% of the current home value. This can result in a substantial decrease in the mortgage payments every month and make the new mortgage much more affordable to the homeowner. The FHA does not underwrite the new refinance loan but guarantees it. This is the incentive that is offered to the lender. In order to participate in and the HOPE for Homeowners FHA refinance program the lender needs to waive certain charges and fees such as late fees, prepayment penalties and agree to release the original mortgage in exchange for the new refinance.

In exchange for providing this relief to the home owners and for guaranteeing an FHA refinance loan through this program the government looks to gain something from the plausible future appreciation in the home value of the borrower. Depending upon the duration after which the home borrower decides to refinance or sell his home he will have to share a certain percentage of the equity appreciation with the FHA.

If the borrower sells refinance within the first year of refinancing through the hope for homeowners program he will have to relinquish hundred percent of any equity appreciation to the FHA.

After 2nd year – 90% goes to FHA.

After 3rd year – 80% goes to FHA.

After 4th year – 60% goes to FHA.

After the 5th year and there after – 50% goes to the FHA.

If there is no appreciation, the government gets nothing when the homeowner sells or refinances his home.

Problems with HOPE for Homeowners FHA Refinance Program

The major problem with HOPE for Homeowners FHA Refinance Program is that none of the major lenders are willing to participate in it. The primary reason for this being that most of them feel that they can recover a larger sum of money from doing a short sale. With the HOPE for Homeowners FHA Program the lenders are taking another risk with a buyer who has already expressed inability to make payments on the mortgage.

To the best of the knowledge of the author of this article none of the major mortgage players such as Wells Fargo, Bank of America etc were participating in the Hope for Homeowners Refinance Program at the time of writing this article. In order to check the list of current mortgage lenders who are participating in this program you can check out the housing and developing website here.

Qualification Criteria for HOPE for Homeowners FHA Program

The following borrowers can qualify for applying for the Hope for Homeowners FHA Program.

1) Homeowners who use the home as the principal residence.

2) Homeowners who do not own any other home.

3) Homeowners whose existing mortgage payments exceed 31% of the gross monthly income.

4) The homeowners have provided and true details on the current mortgage and have not falsified any information such as source of income, amount of income etc.

5) Homeowners who have not been convicted of fraud within the past 10 years.

6) Homeowners who can documents the proof of facing difficulty in meeting the current mortgage payment and can no longer afford to meet the monthly home loan obligation.