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FHA

FHA Mortgage Insurance
 
FHA requires a mortgage insurance premium (MIP) for its homebuying programs. An up-front premium of 1.750% of the loan amount is paid at closing and can be financed into the mortgage amount. In addition, there is a monthly MIP amount included in the PITI of .55%. Condos do not require up front MIP - only monthly MIP.

The mortgage insurance premium paid on an FHA loan is always significantly higher than on a conventional program. On an FHA loan the borrower will be charged a mortgage insurance premium equal to 1.75% of the purchase price of the property and a renewal premium of .550% in subsequent years. By contrast the mortgage insurance premium charged at closing on a conventional program is as low as .500% (with 10% down payment) with renewal rate in subsequent years as low as .300% in subsequent years. 
 
Streamline Refinancing for FHA Mortgages
 

FHA has permitted streamline refinances on insured mortgages since the early 1980's. The streamline refers only to the amount of documentation and underwriting that needs to be performed by the mortgage company, and does not mean that there are no costs involved in the transaction.

The basic requirements of a streamline refinance are:

  • The mortgage to be refinanced must already be FHA insured
  • The borrower must have been making the mortgage payments on time for the past 12 months.
  • The refinance must lower the principal and interest payment of the previous mortgage payment
  • The borrower may not receive cash from loan proceeds
  • Any subordinate financing may remain in place as long as it is subordinated on title.
  • The loan must have owned the property and had the FHA mortgage for at least six months to be eligible
  • The term of the new mortgage must be the lesser of 30 years or the unexpired term of the mortgage plus 12 years. A borrower cannot refinance from a 15 year loan to a 30 year loan.
  • An appraisal is not required unless the closing costs are wrapped into the loan. Streamline refinances without an appraisal are limited to the unpaid principal balance, minus any refund credit of the mortgage insurance premium (MIP), plus the new upfront MIP if it is to be financed in the mortgage.
  • The new monthly principal and interest payment cannot increase by more then $50. If the monthly principal and interest payment increases by more than $50, full credit and income qualification is required.
  • No termite report is required
  • The borrower cannot be late, delinquent, or in default of any federal debt.

Companies may offer streamline refinances in several ways. Some companies offer "no cost" refinances (actually, no out-of-pocket expenses to the borrower) by charging a higher rate of interest on the new loan than if the borrower financed or paid the closing costs in cash. From this premium, the company pays any closing costs that are incurred on the transaction.

Companies may offer streamline refinances and include the closing costs into the new mortgage amount. This can only be done if there is sufficient equity in the property, as determined by an appraisal. Streamline refinances can also be done without appraisals, but the new loan amount cannot exceed what is currently owed, i.e., closing costs may not be added to the new mortgage with those costs either paid in cash or through the premium rate as described above. Investment properties (properties in which the borrower does not reside in as his or her principal residence) may only be refinanced without an appraisal and, thus, closing costs may not be included in the new mortgage amount.

 

FHA Loan Limits
 
FHA has maximum loan amounts, which vary from one county to another. It is critical that the borrower's loan amount, including financed closing costs, not exceed the maximum set by FHA for the county in which the subject property is located. There are no income limits on FHA loans.

FHA Maximum Loan Amounts by State and County
Down Payment Gifts
 

The down payment can be 100% gift funds. This is one of the key benefits to the FHA program.

Verification of the source of gift money is not required. However, it is necessary that the gift funds be deposited in the borrower's bank or savings account, or in an escrow account, prior to underwriting approval. Proof of deposit is required.

Gift donors are restricted primarily to a relative of the borrower. They can also be certain organizations, such as a labor union or charitable organization. Contact your local branch for complete information.

 

Bankruptcy and Foreclosure
 
A credit report will be obtained on the borrower and any lates, collections, judgments, foreclosures, bankruptcies, etc. must have a justifiable explanation in writing by the borrower.

In the event of a foreclosure, the borrower has three years from the date the claim was paid until he/she is eligible for another FHA loan, unless the foreclosure was the result of extenuating circumstances beyond the borrower's control and the borrower has since established good credit.

Chapter 7 bankruptcy requires the borrower to wait at least two years from the date of discharge.

Chapter 13 bankruptcy requires the borrower to have been paying on the bankruptcy for at least one year, performance must have been satisfactory and the borrower must also receive court approval to enter into the mortgage transaction.
Refunds on FHA Loans
 
If you have ever paid off a home loan backed by FHA, you may have money owed to you. And the government wants to pay you back.

About 1 in 10 FHA borrowers leave money in their escrow accounts when they pay off their loans. The average refund for each borrower is about $700.

Former FHA borrowers who think they might be due a refund can call a toll free number, 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.
 

 

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