Advantages Of Using An FHA Loan

Advantages Of Using An FHA Loan

Less Money Down - 3.5% Down Payment
Up to 6% Seller Contribution
100% Gift Funds
The Cost of Upfront Mortgage Insurance Can Be Financed
FHA Loans Are Assumable
Permanent Resident Aliens Are Eligible
Pricing Adjustments for FHA Loans Over $362,790

FHA Single Family Mortgage Insurance Program

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 home ownership 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 under served areas where mortgages may be harder to get. In 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 15 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 3.5 percent. This is because FHA insurance allows borrowers to finance approximately 96.5 percent of the value of their home purchase through their mortgage, in some cases.

Cancellation of the Monthly Mortgage Insurance (MMI)

Because the FHA is basically an insurance company, up until just recently, the removal or cancellation of the Monthly Mortgage Insurance (MMI) policy was not possible. Mortgagee Letter 2000-46 established the criteria by which the MMI would no longer be collected.

"78% Rule"
Once the LTV reaches 78%, the FHA no longer collect the MMI. Unlike Private Mortgage Insurance which uses a current appraisal to determine the value, the FHA will base the value of the property on the lower of the sales price or appraised value at the time of origination.

Loans Longer Than 15 Years

Must pay the MMI for at least 5 years.
The 78% is calculated excluding the amount of the Up-Front MIP financed.

Loans 15 Years and shorter
The 78% is calculated excluding the amount of the Up-Front MIP financed.Loans that are 15 years and shorter with an initial LTV of less than 90%, do not have a Monthly Mortgage Insurance (MMI) policy.

Note: When the note balance reaches 78% by normal amortization, the FHA will discontinue collecting the MMI automatically. Those borrowers who reach the 78% sooner than projected by accelerating or prepaying their mortgage must request that the lender remove the MMI. If they have made all their payments on time (the las 12 months) and have met the requirements listed above, the servicing lender shall submit the proper information to the FHA and they will then discontinue to collect the charge.

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