FHA

In 1937, under an act of Congress, the Federal Housing Administration was established to provide American families with a unique opportunity to become home owners. Formerly, a home buyer's options were only limited to short term loans ranging from 1 to 5 years in term. Borrowers had to put as much as 40 to 50 percent down on the property and pay off the entire loan balance by the end of the term. FHA revolutionized the mortgage industry at the time by offering the 30 year mortgage and made the possibility of home ownership available to Americans nationwide. Throughout the years, a variety of programs have spawned from this revolution to make home ownership easier, more affordable, and attainable to Americans.

Though HUD is not a direct lender, it is the Department's responsibility to maintain an ongoing program designed to monitor the overall quality of loans originated from HUD approved lenders. HUD is an insurer of loans, protecting lenders against potential losses suffered from default and foreclosure. The "mortgage insurance premium" collected from the borrower on each loan helps defray costs associated with this program.

FHA, also known as the Federal Housing Administration, operates under the control of the Department of Housing and Urban Development (HUD) and has the primary responsibility for administering the government home loan insurance program. This program allows buyers who might otherwise not qualify for a home loan to obtain one because the risk is removed from the lender by FHA.

The most popular FHA home loan program nationwide is the 203(b) FHA home loan (see below) that only requires a minimum of 3% from the borrower and permits 100% of their money needed to close to be a gift from a relative, non-profit organization, or government agency.

The main advantage to a FHA home loan is that the credit criteria for a borrower are not as strict as FNMA or FHLMC. Someone who may have had a few credit problems should not have a problem obtaining FHA financing. Also, FHA home loans are assumable, allowing a person to take over the mortgage without the additional cost of obtaining a new loan. In addition, the seller must pay for part of the "traditional" closing costs (called non-allowable costs) while a borrower's allowable costs can partially be wrapped into the loan. 100% of the down payment and closing costs can be gifted.

The greatest disadvantage of FHA home loans is the upfront mortgage insurance premium (MIP). On a 30 or 15 year FHA home loan that equals to 1.50% of the loan amount in addition to the 0.5% annual renewal premium that a borrower will pay for the life of the loan. In addition, FHA limits the amount a borrower can borrower. Scroll down to find out the FHA loan limits in San Joaquin and Stanislaus Counties.

FHA home mortgage loan limits
(Posted July 2003)

San Joaquin County California	$261,609
Stanislaus County California	$202,350

FHA Mortgage Insurance

Similar to conventional home loans, FHA insured mortgages require mortgage insurance. The mortgage insurance, referred to as mutual mortgage insurance (MMI), charges 0.5% per year of the loan amount. In addition to the mutual mortgage insurance that is charged to the home owner each month, FHA charges an upfront mortgage insurance premium (MIP) of 1.50% for 30 year fixed rate mortgages. It is important to note that any unused portion of the upfront MIP may be refunded within the first 84 months of the loan.

Furthermore, the monthly mortgage insurance payment will automatically be cancelled when the outstanding principal balance reaches 78% of the original purchase price (provided that the monthly mortgage insurance payments have been made for a minimum of 5 years for 30 year loans). 15 year mortgages where the home buyer makes a down payment greater than 10% of the purchase price will not have to pay the monthly mortgage insurance.

The following is a table of the upfront MIP and monthly mortgage insurance percentages for FHA home loans:

For 30 year loans originated before January 1, 2001

Upfront MIP	Down Payment	Monthly MI
2.25%	4.99% or less	0.50%
2.25%	5% to 10%	0.50%
2.25%	10.01% or more	0.50%

For 30 year loans originated after January 1, 2001

Upfront MIP	Down Payment	Monthly MI
1.50%	4.99% or less	0.50%
1.50%	5% to 10%	0.50%
1.50%	10.01% or more	0.50%

For 15 year loans originated before January 1, 2001

Upfront MIP	Down Payment	Monthly MI
2.0%	4.99% or less	0.50%
2.0%	5% to 10%	0.50%
2.0%	10.01% or more	0.50%

For 15 year loans originated after January 1, 2001

Upfront MIP	Down Payment	Monthly MI
1.50%	4.99% or less	0.50%
1.50%	5% to 10%	0.50%
1.50%	10.01% or more	0%

FHA Closing Costs

Closing costs that may be charged to the buyer are considered "allowable" closing costs per HUD. These are buyer costs that are reasonable and customary as determined by the local FHA office. All other costs are considered non-allowable are are generally paid by the seller when purchasing a home or the lender when refinancing your current FHA mortgage. The following tables gives a break down of these costs:

Allowable

Non-allowable

Appraisal Fee (if customary)
Credit Report Fee
Compliance Inspection Fee (max $75)
EEM Report Fee
Endorsement Fee (related to title insurance only)
Escrow Fee (1/2 of the total transaction fee and not more than the seller)
Home Inspection Fee
Notary Fee
Origination Fee (max 1% of loan)
Recording Fee
Title Insurance

Allowable in a Refinance

Beneficiary Statement
Courier Fee
Wire Transfer Fee
Payoff of other bills
Reconveyance Fee

Bring-down Fee
Processing Fee
Document Preparation Fee (unless the documents were prepared by a company other than the lender)
Documentary Transfer Stamp Tax
Flood Certification Fee
Inspection Fee (only FHA appraisal compliance inspection are permitted)
Loan Tie-in Fee
Photo Fee
Tax Service Fee
Underwriting Fee

The aforementioned list of FHA closing costs is not an all-inclusive list.

Documentation

Depending on your situation, you will be asked for documentation to support your income, liabilities, and funds to close. This documentation will establish your credibility as a borrower, your ability to repay the FHA home loans and your willingness to repay the loan.

The following is a list of documents that will be required by the lender to process your FHA mortgage as required by HUD:

One full month's worth of paystubs
Last 2 years W-2's (salaried income) and / or last 2 years tax returns with all schedules (commission, dividend, rental income or self-employed borrowers)
Copies of social security, pension, and/or retirement award letters (if applicable)
Last three months bank statement for all accounts
Current statements for all investment accounts
Documentation to support funds to close
Explanation for any credit derogatories
Bankruptcy and discharge paperwork (if applicable)
Divorce decree and any settlement paperwork (if applicable)

FHA faq

Is FHA financing complicated?
Who qualifies for a FHA home loan?
Is it true that the down payment can be gifted?
What is the minimum amount of money I need to buy a home with a FHA mortgage?
I have had a bankruptcy in recent years. Can I get a FHA loan?
Is the upfront mortgage insurance premium negotiable?
How long does it take to receive my MIP refund?
How do I find out if a condo or PUD is HUD approved?

Is FHA financing complicated?
Years ago, FHA financing was more complicated than conventional financing. However changes over the years have streamlined the FHA loan process and in many cases, FHA home loans are easier than conventional financing.

Who qualifies for a FHA home loan?
The program is open to virtually everyone. There are a few restrictions placed upon credit and residency that may preclude someone from obtaining a FHA home loan.

Is it true that the down payment can be gifted?
Yes. Current FHA guidelines permit a relative, a governmental agency, or approved non-profit organization to gift the borrower's down payment. A gift, according to HUD, is just that--a gift. HUD does not permit the borrower to repay the gift as a stipulation of giving the gift.

What is the minimum amount of money I need to buy a home with a FHA mortgage?
The National Housing Act requires the minimum cash investment to be 3 percent of the sales price. Even though the actual down payment may be less than 3 percent, the balance would go towards the borrower's closing costs. In the event that there are no closing costs, the down payment would be increased to 3 percent.

I have had a bankruptcy in recent years. Can I get a FHA loan?
Generally a bankruptcy will not preclude a borrower from obtaining a FHA loan. Ideally, a borrower should have re-established a minimum of two credit accounts (such as a credit card, car loan, etc.) and wait 2 years since the discharge of a Chapter 7 bankruptcy or have a minimum of 1 year of repayment with a Chapter 13 (the borrower must also seek permission of the courts to allow this). Furthermore, the borrower should not have any late payments, collections, or credit charge-offs since the discharge of the bankruptcy. If a borrower has suffered through extenuating circumstances (such as surviving cancer but had to declare bankruptcy because the medical bills were to much), special exceptions can be made (rarely).

Is the upfront mortgage insurance premium negotiable?
No. In order to cover some of the costs incurred by HUD for FHA loans, they must assess the upfront and monthly mortgage insurance to the home buyer. This upfront fee equals 1.50% and the borrower will have to pay 0.5% annually in mortgage insurance premiums. However, if you are buying a condominium, you do not have to pay the upfront mortgage insurance premium.

How long does it take to receive my MIP refund?
Generally, it takes approximately four to six weeks to receive your MIP refund if you have sold your home and paid off an existing FHA home loan or refinanced your FHA mortgage to another mortgage other than FHA. If you refinance your property to another FHA loan, a MIP refund credit will be applied to the balance you owe against the home at the time of closing. Former FHA borrowers who think they might be due a refund can call a toll free number, 1-800-697-6967, or write HUD at P.O. Box 23669, Washington DC 20026-3699. Or you can look for your name with the HUD Refund Search Form

How do I find out if a condo or PUD is HUD approved?
You can search online at the following website:

Condos: https://entp.hud.gov/idapp/html/condlook.cfm

PUDs: https://entp.hud.gov/idapp/html/subdivlook.cfm

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