Single
Family Home Loans - Made possible by FHA Mortgage Insurance
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 mortgage companies to
make loans to otherwise creditworthy borrowers and projects that might
not be able to meet conventional underwriting requirements, by protecting
the mortgage company against loan 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 insurance programs.
It is 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 loans on affordable
terms, as well as for those who live in underserved areas where mortgages
may be harder to get. In FY 1997, FHA insured more than 790,000 homes,
valued at almost $60 billion, under this program. FHA currently insures
a total of about 7 million loans valued at nearly $400 billion. These
obligations are protected by FHA's Mutual Mortgage Insurance Fund,
which is sustained entirely by borrower premiums.
Section
203(b) has several important features:
Down payment
requirements can be low. In contrast to conventional mortgage
products, which frequently require down payments 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 down payments
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 loans, 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 mortgage companies may charge in making a loan. For example,
the loan origination fee charged by the mortgage company for the administrative
cost of processing the loan 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 loan.
