- How does HUD help homebuyers
and homeowners?
- What is the FHA?
- How can the FHA assist me in
buying a home?
- How is the FHA funded?
- Who can qualify for FHA loans?
- What is the FHA loan limit?
- What are the steps involved
in the FHA loan process?
- How much income must I have
to qualify for an FHA loan?
- What qualifies as an income
source for the FHA loan?
- Can I carry debt and still
qualify for FHA loans?
- What is the debt-to-income
ratio for FHA loans?
- Can I exceed this ratio?
- How large a down payment do
I need with an FHA loan?
- What can I use to pay the
down payment and closing costs of an FHA loan?
- How does my credit history
impact my ability to qualify?
- Can I qualify for an FHA loan
without a credit history?
- What types of closing costs
are associated with FHA-insured loans?
- Can I roll closing costs into
my FHA loan?
- Are FHA loans assumable?
- What should I do if I can't
make a payment on my loan?
- Are there any options if I
fall behind on my loan payments?
1. How does HUD help homebuyers and homeowners?
HUD helps people by administering a variety of programs that
develop and support affordable housing. Specifically, HUD
plays a large role in homeownership by making loans available
for lower- and moderate-income families through its FHA mortgage
insurance program and its HUD Homes program. HUD owns homes
in many communities throughout the U.S. and offers them for
sale at attractive prices and economical terms. HUD also seeks
to protect consumers through education, Fair Housing Laws,
and housing rehabilitation initiatives.
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2. What is the FHA Loan?
Now an agency within HUD, the Federal Housing Administration
was established in 1934 to advance opportunities for Americans
to own homes. By providing private lenders with mortgage insurance,
the FHA gives them the security they need to lend to first-time
buyers who might not be able to qualify for conventional loans.
The FHA has helped more than 26 million Americans buy a home.
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3. How can the FHA assist me in buying
a home?
The FHA works to make homeownership a possibility for more
Americans. With the FHA, you don't need perfect credit or
a high-paying job to qualify for a loan. The FHA also makes
loans more accessible by requiring smaller down payments than
conventional loans. In fact, an FHA down payment could be
as little as a few months rent. And your monthly payments
may not be much more than rent.
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4. How is the FHA funded?
Lender claims paid by the FHA mortgage insurance program are
drawn from the Mutual Mortgage Insurance fund. This fund is
made up of premiums paid by FHA-insured loan borrowers. No
tax dollars are used to fund the program.
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5. Who can qualify for FHA loans?
Anyone who meets the FHA credit requirements, can afford the
mortgage payments and cash investment, and plans to use the
mortgaged property as a primary residence, may apply for an
FHA-insured loan.
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6. What is the FHA loan limit?
Click here to get to HUD's website to see your maximum loan amount for your country
Because these maximums are linked to the conforming loan
limit and average area home prices, FHA loan limits are periodically
subject to change. Ask your lender for details and confirmation
of current limits.
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7. What are the steps involved in the
FHA loan process?
With the exception of a few additional forms, the FHA loan
application process is similar to that of a conventional loan.
With new automation measures, FHA loans may be originated
more quickly than before. And, if you don't need a face-to-face
meeting you can apply for an FHA loan via mail, telephone,
the Internet, or video conference.
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8. How much income must I have to qualify
for an FHA loan?
There is no minimum income requirement, but you must prove
steady income for at least three years and demonstrate that
you've consistently paid your bills on time. See #11 below
for more details.
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9. What qualifies as an income source
for the FHA?
Seasonal pay, child support, retirement pension payments,
unemployment compensation, VA benefits, military pay, Social
Security income, and alimony all qualify as income sources.
Part-time pay, overtime, and bonus pay also count as long
as they are steady and you can document a history of receipt.
Special savings plans – such as those set up by a church
or community association – also qualify. Income type
is not as important as income steadiness with the FHA.
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10. Can I carry debt and still qualify
for FHA loans?
Yes! Short-term installment debt doesn't count as long as
it can be paid off within 10 months. Some regular expenses
such as child care costs are not considered debt. Talk to
your lender or real estate agent about meeting the FHA debt-to-income
ratio.
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11. What is the debt-to-income ratio
for FHA loans?
The FHA allows you to use 29% of your income towards housing
costs and 41% towards housing expenses and other long-term
and credit card debt. With a conventional loan, this qualifying
ratio allows only 28% toward housing and 36% towards housing
and other debt. These are standard guidelines. Today’s
automated underwriting permits a borrower’s application
to be potentially approved with higher debt ratios depending
on the overall financial situation.
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12. Can I exceed this ratio?
You may qualify to exceed if you have:
- A large down payment
- A demonstrated ability to pay more toward your housing
expenses
- Substantial cash reserves
- Net worth enough to repay the mortgage regardless of income
- Evidence of acceptable credit history or limited credit
use
- Less-than-maximum mortgage terms
- Funds provided by an organization
- A decrease in monthly housing expenses
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13. How large a down payment do I need
with an FHA loan?
You must have a down payment of at least 3.5% of the purchase
price of the home. Most affordable loan programs offered by
conventional lenders require between a 3.5% - 5% down payment,
with a minimum of 3.5% coming directly from the borrower's own
funds.
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14. What can I use to pay the down payment
and closing costs of an FHA loan?
Besides your own funds, you may use gifts from several acceptable
sources. If you lease purchase, paying extra rent to the seller
may also be considered the same as accumulating cash.
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15. How does my credit history impact
my ability to qualify?
The FHA is generally more flexible than conventional lenders
in its qualifying guidelines. In fact, the FHA allows you
to re-establish credit if:
- Two years have passed since a bankruptcy has been discharged
- All judgments have been paid
- Any outstanding tax liens have been satisfied or appropriate
arrangements have been made to establish a repayment plan
with the IRS or state Department of Revenue
- Three years have passed since a foreclosure or a deed-in-lieu
has been resolved
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16. Can I qualify for an FHA loan without
a credit history?
Yes! If you prefer to pay debts in cash or are too young to
have established credit, there are other ways to prove your
eligibility. Talk to your lender for details.
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17. What types of closing costs are associated
with FHA-insured loans?
Except for the addition of an FHA mortgage insurance premium,
FHA closing costs are similar to those of a conventional loan.
The FHA requires a single, up-front mortgage insurance premium
equal to 1.5% of the mortgage to be paid at closing. This
initial premium may be partially refunded if the loan is paid
in full during the first seven years of the loan term. After
closing, you will then be responsible for an annual premium
- paid monthly - if your mortgage is more than 15 years or
if you have a 15-year loan with an LTV greater than 90%.
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18. Can I roll closing costs into my
FHA loan?
No. Though you can't roll closing costs into your FHA loan,
you may be able to use the amount you pay for them to help
satisfy the down payment requirement. Ask your lender for
details.
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19. Are FHA loans assumable?
Yes! You can assume an existing FHA-insured loan, or if you
are selling, you can allow a buyer to assume yours. Assuming
a loan can be very beneficial since the process is streamlined
and less expensive compared to that for a new loan. Also,
assuming a loan can often result in a lower interest rate.
The application process consists basically of a credit check
and no property appraisal is required. You must demonstrate
that you have enough income to support the mortgage loan.
In this way, qualifying to assume a loan is similar to the
qualification requirements for a new one.
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20. What should I do if I can't make
a payment on my loan?
Call or write your lender as soon as possible. Clearly explain
the situation and be prepared to provide him or her with financial
information.
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21. Are there any options if I fall behind
on my loan payments?
Yes! Talk to your lender or a HUD-approved counseling agency
for details. Listed below are a few options that may help
you get back on track.
For FHA loans:
- Keep living in your home to qualify for assistance.
- Contact a HUD-approved housing counseling agency (1-800-569-4287
or TDD: 1-800-877-8339) and cooperate with the counselor/lender
trying to help you.
- HUD has a number of special loss mitigation programs available
to help you
- Special Forbearance: your lender will arrange for
a revised repayment plan which may include temporary
reduction or suspension of payments; you can qualify
by having an involuntary reduction in your income or
increase in living expenses.
- Mortgage Modification: allows refinance debt and/or
extension of the term of your mortgage loan, which may
reduce your monthly payments; you can qualify if you
have recovered from financial problems, but net income
is less than before.
- Partial Claim: your lender maybe able to help you
obtain an interest-free loan from HUD to bring your
mortgage current.
- Pre-foreclosure Sale: allows you to sell your property
and pay off your mortgage loan to avoid foreclosure.
- Deed-in lieu of Foreclosure: lets you voluntarily
"give back" your property to the lender; it
won't save your house but will help you avoid the costs,
time, and effort of the foreclosure process.
If you are having difficulty with an-uncooperative lender
or feel your loan servicer is not providing you with the most
effective loss mitigation options, call the FHA Loss Mitigation
Center at 1-888-297-8685 for additional help.
For Conventional Loans:
Talk to your lender about specific loss mitigation options.
Work directly with him or her to request a "workout packet."
A secondary lender, like Fannie Mae or Freddie Mac, may have
purchased your loan. Your lender can follow the appropriate
guidelines set by Fannie or Freddie to determine the best
option for your situation.
Fannie Mae does not deal directly with the borrower. They
work with the lender to determine the loss mitigation program
that best fits your needs.
Freddie Mac, like Fannie Mae, will usually only work with
the loan servicer. However, if you encounter problems with
your lender during the loss mitigation process, you can coil
customer service for help at 1-800-FREDDIE (1-800-373-3343).
In any loss mitigation situation, it is important to remember
a few helpful hints:
Explore every reasonable alternative to avoid losing your
home, but beware of scams. For example, watch out for:
- Explore every reasonable alternative to avoid losing your
home, but beware of scams. For example, watch out for:
- Equity skimming: a buyer offers to repay the mortgage
or sell the property if you sign over the deed and move
out.
- Phony counseling agencies: offer counseling for a
fee when it is often given at no charge.
- Don't sign anything you don't understand.
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