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Summary:
Through this program, HUD's Federal Housing
Administration (FHA) insures mortgages made by qualified lenders
to people purchasing or refinancing a home of their own.
Purpose:
FHA's mortgage insurance programs help
low- and moderate-income families become homeowners by lowering
some of the costs of their mortgage loans. FHA mortgage insurance
also encourages lenders to make mortgages to otherwise creditworthy
borrowers and projects that might not be able to meet conventional
underwriting requirements, by protecting the lender against default
on mortgages for properties that meet certain minimum requirements--including
manufactured homes, single-family and multifamily properties, and
some health-related facilities.
Section 203(b) is the centerpiece of FHA's single-family mortgage
insurance programs—the successor of the program that helped save
homeowners from default in the 1930s, that helped open the suburbs
for returning veterans in the 1940s and 1950s, and that helped shape
the modern mortgage finance system. Today, FHA One- to Four-Family
Mortgage Insurance is still an important tool through which the
Federal Government expands homeownership opportunities for first-time
homebuyers and other borrowers who would not otherwise qualify for
conventional mortgages on affordable terms, as well as for those
who live in underserved areas where mortgages may be harder to get.
These obligations are protected by FHA's Mutual Mortgage Insurance
Fund, which is sustained entirely by borrower premiums.
Type of Assistance:
This program provides mortgage
insurance to protect lenders against the risk of default on mortgages
to qualified buyers. Insured mortgages may be used to finance the
purchase of new or existing one- to four-family housing, as well
as to refinance debt. Section 203(b) has several important features:
-- Downpayment requirements can be low. In contrast to conventional
mortgage products, which frequently require downpayments of 10 percent
or more of the purchase price of the home, single-family mortgages
insured by FHA under Section 203(b) make it possible to reduce downpayments
to as little as 3 percent. This is because FHA insurance allows
borrowers to finance approximately 97 percent of the value of their
home purchase through their mortgage, in some cases.
-- Many closing costs can be financed. With most conventional
mortgages, the borrower must pay, at the time of purchase, closing
costs (the many fees and charges associated with buying a home)
equivalent to 2-3 percent of the price of the home. This program
allows the borrower to finance many of these charges, thus reducing
the up-front cost of buying a home. FHA mortgage insurance is not
free: borrowers pay an up-front insurance premium (which may be
financed) at the time of purchase, as well as monthly premiums that
are not financed, but instead are added to the regular mortgage
payment.
-- Some fees are limited. FHA rules impose limits on some of the
fees that lenders may charge in making a mortgage. For example,
the mortgage origination fee charged by the lender for the administrative
cost of processing the mortgage may not exceed one percent of the
amount of the mortgage.
-- HUD sets limits on the amount that may be insured. To make
sure that its programs serve low- and moderate-income people, FHA
sets limits on the dollar value of the mortgage. The current FHA
mortgage limit ranges from $172,632 to $312,895. These figures
vary over time and by place, depending on the cost of living and
other factors (higher limits also exist for two- to four-family
properties).
Eligible Participants:
FHA-approved lending institutions,
such as banks, mortgage companies, and savings and loan associations,
can make insured Section 203(b) mortgages.
Eligible Customers:
Anyone intending to use the
mortgaged property as their primary residence is eligible to apply
for an FHA insured mortgage through FHA-approved
lenders. This program is not open to investors.
Application:
Any person able to meet the cash investment,
the mortgage payments, and credit requirements can apply. The program
is limited to owner-occupants. Applications are made through an
FHA-approved lending institution. Most lenders who use this mortgage
insurance product, however, make their requests through a provision
known as Direct Endorsement,
which authorizes them to consider applications without submitting
paperwork to HUD. Borrowers can locate FHA-approved
lenders through the searchable listing provided on HUD's
homepage.
Technical Guidance:
This program is authorized
under Section 203, National Housing Act (12 U.S.C. 1709 (b), (i)).
Program regulations are in 24 CFR Part 203. The program is administered
by HUD's Office of Housing-Federal
Housing Administration.