fha hud loan guide

8/14/2019 FHA HUD Loan Guide

1/23

Guide to FHA/HUD Loans

Copyright 2009 LendingTree All Rights Reserved

The All New

You to the rescue

Guides for Todays Lifestyle

by Craig Grella


2/23

Copyright 2009 LendingTree. All rights reserved.

To share this document, please visit lendingtree.com/tax-credit-guide

Guide to FHA/HUD LoansThe All New

Contents

FHA Home Loan Basics 1

Qualifying for a FHA Insured Loan 2

Mortgages Offered Through FHA Loan Programs 3

Make a Home Purchase with a FHA Purchase Loan 4

What is a Disaster Recovery Loan? 5

Use a FHA Rehabilitation Loans to Purchase or Refinance a Home 6

Energy Efficient Mortgages through FHA Loan Programs 7

Home Equity Conversion Mortgage Basics 8

Section 248 Loans For Homes on an Indian Reservation 9

Improve your Home with a Title 1 Loan 10

Fixer Upper Loans for The Handyman Special Home 11

Streamline Refinance Programs from the FHA 12

Common FHA Home Loan Myths 13

Avoiding FHA Loan Scams: What to Watch Out For 14

What Does an FHA Certified Housing Counselor Do? 15

Working with an FHA-Approved Lender for Your Home Loan 16

HUD and FHA Loan Programs in Your State 17

HUD Offers Public Housing Assistance 18

How to Protect Yourself Against Predatory Loans 19


3/23


To share this document, please visit lendingtree.com/tax-credit-guide 1


FHA Home Loan BasicsAn FHA insured loan is a loan product offered to borrowers across the country for the purchase of a new home orrenance of an existing home. FHA insured loans can also be used to construct or rehabilitate a home, and even to

add energy-efcient features to a property.

Benets of an FHA insured loan include:

A low down payment

A market interest rate

Low loan closing costs

No credit or income restrictions.

FHA insured loan dollars do not actually come from thegovernmentrather, the loans are made by companies

who agree to lend money to borrowers who meet

certain guidelines established by the FHA. These

companies are called HUD approved lenders, and the

loans they make are insured by the FHA.

If a borrower defaults on a loan made through the FHA

insured program, the FHA will repay the lender for the

amount of the default. For this reason, FHA insured

loans are very secure and allow the borrower relaxed

credit and income restrictions.

Popular FHA Insured Loan ProgramsThe FHA offers several programs for which they insure

loans. The most popular and widely used FHA loan

programs include:

203(b): The main FHA insured loan, which provides

insurance for the purchase or renance of a principal

residence of 1 to 4 units.

203(k): Also known as the Streamline Limited

Repair Program, this allows buyers to nance coststo make property repairs or improvements.

EEM: Energy efcient mortgages allow the borrower

to nance the cost of adding energy efciency

features to new or existing housing.

FHA Loan Program Qualifying GuidelinesThe FHA makes applying for a loan easier than most

conventional, conforming loans. There are only ve

basic requirements that must be met in order to qualify

for a FHA insured loan:

1. The borrower must be a U.S. citizen, a permanent or

non-permanent resident alien

2. The borrower must provide a down payment of at

least 3.5 percent (with some seller concessions or

gifts allowed)

3. The loan must be no more than the maximum loan

limit applicable in your area

4. The property must be a one-to-four unit structure

5. The property must be used as the borrowers

principal residence.

Approved FHA LendersTo obtain an FHA insured loan, you must apply through

an HUD approved lender. This can include commercial

banks, local lenders, non-prot companies and

special agencies in every state across the country.

Approved FHA lenders agree to adhere to FHA rules

when underwriting loans, which include screening

each borrower to make sure they meet the guidelines

established above.


4/23




Qualifying for a FHA Insured LoanThe US Department of Housing and Urban Development (HUD) makes qualifying for an FHA insured loan quick andeasy for borrowers. Due to relaxed credit and income restrictions, FHA insured loans are available to a larger pool of

borrowers than conventional, conforming loan counterparts.

While the HUD lending partner will set the nal loan

interest rate and payment terms, there are only ve

major qualifying guidelines you need to meet in order to

be approved for an FHA insured loan. They are:

1. Borrower must be a US citizen, or a permanent or

non-permanent resident alien.2. Borrower must have a down payment of at least

3.5 percent (with some seller concessions or gifts

allowed)

3. The loan must be no more than the maximum loan

limit applicable in your area

4. The property in question must be a one-to-four unit

structure

5. The property in question must be used as the

borrowers principal residence.

FHA Loan LimitsThe FHA has a maximum loan amount they will insure,

and their lending partners cannot grant FHA loans

above that amount. For most states, the maximum loan

limit is $417,000, though it can be elevated for high cost

of living areas (such as New York City, Los Angeles, and

Hawaii).

No FHA Credit Requirements or Income

GuidelinesCurrently, the FHA does not impose a minimum credit

score or income requirement on borrowers. However,

the FHA does issue its lending partners suggestions for

reviewing these two important factors when considering

a loan approval.

The FHA suggests that borrowers have good credit

history and steady employment. Generally, lenders will

look to approve loans for borrowers with a track record

of paying their bills on time and employment with the

same company for a period of 2 years or more. While

FHA insured loans are available for borrowers with less

than perfect credit, like those whove had past nancial

issues such as bankruptcy or foreclosure, individual

lenders make nal decision on loan terms, which means

they may set prohibitively high interest rates or chooseto deny the loan altogether.

Finding a HUD Approved LenderFHA insured loans are made through lending partners

across the country. These include commercial and

community banks, stage agencies, and non-prot

lenders.


5/23




Mortgages Offered Through FHA Loan ProgramsMany FHA loan programs offer different types of home nancing. Keep reading for a brief overview ofthese programs, and the FHA home loans that are available in each option.

FHA Home Purchase LoansOne of the most popular loan programs available

is the FHA 203(b) insured loan, offered through

HUD lending partners. This loan allows potential

borrowers to purchase a home with as little as 3.5

percent of the purchase price as a down payment.

There are no minimum credit score or maximum

income restrictions, and these FHA home loans areavailable in all 50 states. Generally, market interest

rates are available for well qualied borrowers,

and even those with past bankruptcies and

foreclosures can apply.

The FHA Rehabilitation LoanAmong the many loans give borrowers the ability

to rehabilitate new and existing homes. These

FHA home loans, also known as 203(k) loans,

allow purchasers the ability to buy a home andadd rehabilitation costs to the amount of money

borrowed. These loans have maximum limits,

which are determined by the state in which the

property is located. Improvements must be made

within 90 days of the FHA loan closing, and must

be inspected by a HUD approved appraiser.

FHA Energy Efficient MortgagesFor energy conscious homeowners, the FHA offers

energy efcient mortgages. These FHA homeloans allow borrowers to get money for installing

high energy efciency appliances and materials in

their homes. Energy efcient features must also be

installed within 90 days of loan close and are to be

inspected by a HUD appraiser. Such improvements

include:

Energy-efcient doors, windows and insulation

Geothermal heat pumps

Solar panels.

FHA Disaster LoansThe FHA makes money available to insure

mortgages made to victims of major natural

disasters. This loan program is known as the FHA

203(h), and is available to residents located in

presidentially declared disaster areas. In order to

be eligible, homes must have been destroyed or

damaged to such an extent that reconstruction orreplacement is necessary. The 203(h) loan can be

used for the purchase of a new or existing home.

or the rehabilitation and construction of a home

in the designated areas. A great feature of the

disaster loan is that no down payment is required.

Borrowers can get up to 100 percent nancing,

and closing costs for the loan can even be covered

by the seller or given to the buyer as a gift at

closing.

FHA Streamline RefinanceFor those who wish to renance existing FHA

home loans, they can apply to a HUD approved

lender for a streamline renance. This reduces

the amount of documentation and underwriting

normally accompanied with applying for FHA

home loans. The current FHA loan must not be

a delinquent account, and the renance must

result in a lower monthly principal and lower

interest payments on the loan. The FHA streamline

renance can be used for rate and term renancesonly, these FHA home loans wont allow you to

take cash out of your home equity.


6/23




Make a Home Purchase with a FHA Purchase LoanOne of the most popular FHA loan programs is the 203(b) mortgage insurance program. This program allowsborrowers to obtain a FHA purchase loan through a HUD approved lender. This loan can be used for a new or

existing home purchase. In order to qualify, however, the home must be used as the borrowers principal residence.

To be eligible for the FHA 203(b) loan program, a buyer must make a home purchase on a property that is one to

four units in size. In addition, he must have a down payment of at least 3.5 percent of the purchase price.

Limits on FHA Purchase LoansEach HUD/FHA home loan has a maximum amount

that can be borrowed. This loan amount is $417,000 for

most areas of the country. The HUD and FHA recognizethat some areas of the country have a higher cost of

living and a higher average home price. Accordingly,

FHA home loan limits can be higher for high cost areas

like Los Angeles, New York and Hawaii. You can visit

HUDs website to nd the FHA home loan limit for your

area.

If you plan to use your FHA home loan for a home

purchase or renance, you can only borrow up to the

maximum loan limit. If the home purchase or renance

requires a larger amount, the difference must be brought

in cash as a down payment or in a junior lien position.

Keep in mind that in addition, the minimum 3.5 percent

down payment requirement must also be met.

How a FHA Purchase Loan Differs from a

Conventional LoansConventional lenders use credit and income as the two

main underwriting criteria. Generally, a higher creditscore and income level of the borrower means a less

likelihood of loan default. Because of this, conventional

lenders usually set their minimum required credit score

in the high 600 to low 700 ranges. Conventional loans

also require large down payments, sometimes as high

as 20 percent of the purchase price or more.

An FHA purchase loan has no minimum credit

requirement or income restrictions, and can be obtained

with a down payment of as little as 3.5 percent. These

lenient requirements give more people the opportunity

to get a FHA home loan. It also allows those with less-

than-perfect credit and lower cash reserves to make a

home purchase.

Where to Find FHA Home Purchase

LoansFHA home purchase loans can be obtained through

any HUD approved lender, which may be a commercial

bank, non-prot, or a state agency. Commercial banks

are the largest FHA insured lenders, and they can be

found in each state across the United States. In order

to nd an approved lender for a FHA home loan, check

out the extensive database offered by LendingTree, or

consult HUDs website.


7/23




What is a Disaster Recovery Loan?A disaster loan, also known as the FHA 203(h) loan, makes mortgages available to residents in presidentiallydeclared disaster areas. Some examples would be those areas of the country ravaged by major oods, hurricanes

and earthquakes. Keep reading to learn about this vital part of a disaster recovery plan. Perhaps you are eligible for

the 203(h) loan program, one of many FHA loan programs.

Disaster loans allow the borrower to obtain money for

the:

Construction of a new home: If a borrowers home

was destroyed by a natural disaster, the 203(h) loan

will allow the reconstruction or new constructionof the home, up to current building and safety

standards.

Purchase of a new or existing home: A borrowers

home may be destroyed, damaged beyond repair,

or deemed unlivable after a natural disaster. If this

should happen, one of these FHA loans can provide

the resident with funds to purchase another home.

Rehabilitation of an existing home: If a borrowers

home wasnt destroyed, but damaged to the point

where repairs are necessary, the 203(h) loan provides

the funds to do so.

Eligibility for Disaster LoansTo be eligible to receive disaster loans, borrowers

must have been directly affected by a natural disaster.

In addition, their home must be located within a

presidentially declared disaster area. In order to qualify

for these FHA loans, borrowers must also qualify under

standard FHA insured loan guidelines.

Benefits of Disaster FHA LoansWhile forming a disaster recovery plan, disaster victims

need to use their readily available funds for staple items

like food, water and safety items. Because of this, FHA

203(h) disaster loans allow borrowers to get as much

as 100 percent nancing (no down payment) on the

purchase of a new or existing home. Borrowers also

have the option of nancing 100 percent of the cost to

construct a new home or rehabilitate an existing home.

Disaster Recovery Loans Can Stop

ForeclosureDisaster recovery loans offer a distinct advantage for

those who are currently in foreclosure and are located

in a disaster area. HUD can issue a moratorium on

the loan in foreclosure. This prevents the lender from

proceeding with the foreclosure process for a period

of up to 90 days from the issue date of the HUD letter.

This time period allows HUD the chance to review the

subject property and its loan.

Applying for Disaster LoansFHA disaster loans are made through HUD approved

lenders in all 50 states where a presidentially declared

disaster area exists. To nd out if you are eligible for a

disaster recovery loan, contact your lender to begin this

step in your disaster recovery plan. You also have the

option of searching the extensive lender database on

LendingTree.com for a provider.

Current national disaster areas are listed on the

Department of Homeland Security website and through

the Federal Emergency Management Agency (FEMA)

website. Youll want to nd out if your area has been

included on this list before applying for a disaster

recovery loan.


8/23




Use a FHA Rehabilitation Loans to Purchase or Refinance a HomeThe HUD/FHA rehabilitation loan, also known as the 203(k) loan, provides money for borrowers to rehabilitatean existing home, or to purchase a home and immediately make improvements to it. These loans are great for

borrowers who are purchasing homes that need immediate repairs. Examples of these improvements may include:

Adding handicap accessible features

Bringing the home up to code

Remodeling a home that has signicant wear and tear.

Qualifying for rehab loan is relatively easy. The application process mirrors that of other another FHA loan programs

203(b) loan.

Eligible Repairs under the 203(k) Loan

ProgramThe FHA rehabilitation loan can be used to make repairs

to a residential property, or to the residential portion of a

property that also has non-residential uses. Some of the

acceptable uses for these rehab loans include, but are

not limited to:

Adding handicap accessible features

Adding roofs, gutters and downspouts

Eliminating health and safety hazards

Making changes to eliminate obsolescence

Making landscaping and site improvements

Making structural alterations

Making the home more energy efcient

Modernizing the home.

FHA Rehab Loan LimitsThe cost of planned improvements to a home can be

rolled into the rehab loans amount. This amount must

be equal to or less than the maximum allowable loan

limit applicable for the borrowers geographic location.The maximum loan limit is set by HUD at $417,000

for most areas of the country. Limits for an FHA

rehabilitation loan may be higher for in areas where cost

of living is higher.

Rehab Loans for Less Extensive RepairsFor less extensive repairs or improvements, the FHA

Streamline-K program permits borrowers to get up

to $35,000 rolled into their mortgage to improve or

upgrade their home after purchase. The requested

repairs must be documented when the loan application

is led. These improvements must also be inspected

by a HUD or FHA appraiser after installation, as well as

before the homeowner can move into the home.

How a FHA Rehabilitation Loan Differs

from Most Rehab LoansIn a typical rehab situation, the borrower would need

to purchase the property with a purchase loan, and

then obtain a separate construction loan to fund the

costs of the improvements or repairs. These additional

construction loans are typically offered as short-term

loans with a higher than market rate interest rate.

The FHA/HUD rehabilitation loan offers a single loan to

complete both the purchase and rehabilitation. There is

just one closing, and rehab loans feature a market rateinterest rate which can be xed for the term of the loan.


9/23




Energy Efficient Mortgages through FHA Loan ProgramsHUD and the FHA rewards residents who want to lower their utility bills and make their homes more energy efcient.In order to do this, FHA loan programs allowing homeowners access to energy efcient mortgages, also known as

EEMs.

The energy efcient mortgage program helps homebuyers and homeowners nance the addition of energy efcient

features and products to their new or existing homes. The mortgage allows the borrower to roll the cost of the

added features into her overall loan. These FHA loan programs can be used in conjunction with other FHA-insured

programs like the 203(b), 203(h) and 203(k).

Qualifying for the Energy Efficient

Mortgage ProgramAll borrowers who qualify for FHA loan programs

are eligible to apply for energy efcient mortgages.

In addition, the cost and features of energy efcient

appliances to be installed must be evaluated by an FHA

approved energy consultant.

Energy Efficiency and Eligible PurchasesMoney for energy efcient improvements can be used

for the construction of a new home, or the rehabilitation

of an existing home. Typical improvements for energyefciency include the following:

Installing active or passive solar technology

Installing geothermal heat pumps

Insulating an attic or crawl space

New doors and windows

Replacing or adding a furnace or cooling system.

To nd out if your planned improvement can be included

in FHA energy efcient mortgages, you should consult

with an energy rater in your area. You can check out

Energy Stars website to nd local energy raters.

Energy Efficient Mortgage Program

LimitsDo you need to nd out how much money you can get

for improving your homes energy efciency? There are

two ways to determine this amount:

1. The cost of the energy efcient improvements, their

installation and the cost of reports and inspections.

2. The lesser of 5 percent of one of the following:

115 percent of the median price of the same

property type for your area; or

150 percent of the conforming Freddie Mac limit.

The value of the property.The additional money for energy efciency

improvements is placed in an escrow account after the

FHA insured loan closes. Once the improvements are

completed, these funds are released to the borrowed,

and an inspection is done to conrm proper installation.

Learn More About FHA Loan ProgramsEnergy efcient mortgages are obtained through select

HUD approved lenders. Feel free to review the lender

database offered by LendingTree.com or consult withHUD in order to nd local approved lenders.


10/23




Home Equity Conversion Mortgage BasicsThere are many FHA loan programs that offer different type of home nance options. The home equity conversionmortgage insurance (HECM) program from the FHA allows homeowners to convert their home equity into cash

payments from a HUD approved lender. Reverse mortgages are a good option for those who can qualify for the

HECM program.

Unlike traditional loans, no payments are required on reverse mortgages until the borrower sells the home or stops

using it as her principal residence. Typically, proceeds from home sales are used to repay reverse mortgages.

Calculating Your Home Equity for

Reverse MortgagesHome equity is dened as the difference between the

current market value of the home and the sum of its

outstanding debt. To calculate the equity in your home,

subtract the total of all mortgages on the home from the

current market value. For instance, if your home is worth

$300,000 and you have a $25,000 mortgage, your home

equity is $275,000 ($300,000 - $25,000).

Properties Eligible for the HECM LoanTo be eligible for the program, the home must be one of

the following:

HUD-approved condominiums

HUD-approved manufactured homes

Multifamily properties of 1-4 units, with one unit

occupied by the borrower

Single family home.

Reverse Mortgages and Payment OptionsHECMs or Reverse mortgages from FHA loan programs

allow borrowers to unlock the equity in their homes,

and use that cash for any purpose. The home equityconversion mortgage allows borrowers to get a loan

with one of ve payment options:

Line of credit allows the borrower to make

withdrawals up to a pre-determined maximum

amount

Modied tenure combines the tenure option with a

line of credit

Modied term combines the term option with a line

of credit.

Tenure gives the borrower a monthly payment

from the lender for as long as the borrower lives

and continues to occupy the home as a principal

residence

Term gives the borrower monthly payments for a

xed period selected by the borrower

Each option has a maximum loan or line amount

that can be withdrawn. That number is based upon

underwriting and credit decisions made by the individual

lender.

Advantages of the FHA Loan Programs

HECMThere are many great advantages of home equity

conversion mortgage program. The FHA does not

have credit requirements, and the HECM is available

regardless of your current income. The amount that can

be borrowed relies chiey on the following:

FHA mortgage limits for your area

Interest rate

The current market or appraised value of your home

Your age.

Other Program RequirementsThe program requires that borrowers receive free or low

cost reverse mortgage housing counseling from a HUD

approved reverse mortgage counseling agency before

applying for a reverse mortgage.


11/23




Section 248 Loans For Homes on an Indian ReservationTraditionally, tribes prohibited non-Indian companies from closing on tribal property. This made conventional lendershesitant to lend money for property in those locations. Because of this, nancing for tribal properties was very hard

to obtain, forcing many residents to live in sub-standard conditions.

Section 248 was added to the National Housing Act to provide FHA home loans and mortgage insurance for those

living on an Indian reservation or other restricted lands. Section 248 loans make it more feasible for conventional

lenders to offer mortgages for property on reservations. It also allows more reservation residents to afford standard

housing.

Eligibility for Section 248 Loans

To be eligible for section 248 loans, both a borrowerand property must meet certain guidelines. They

borrower must be an individual member of any federally

recognized Indian tribe. An Indian tribe is dened as

an Indian or Alaska Native tribe, band, nation, or other

federally recognized organized group or community

of Indians or Alaska Natives. Unfortunately, native

Hawaiians are not eligible to receive this FHA home loan

programs benets.

Eligible homes include homes located on an Indian

reservation or restricted land, including Alaska Native

areas. Section 248 loans can be used on any property

type approvable under general FHA insured loan

guidelines. These include:

Manufactured homes

Mobile homes

Multi-family homes

Single family homes.

Indian Reservation/Tribe Participation

Although funds for section 248 FHA home loans dontcome from the tribe, it must agree to participate in the

program if one of their residents is to do so. There are

several program requirements that must be satised

by the tribe before FHA will insure mortgages on the

reservation. The tribe must:

Agree to the lease form that HUD provides

Conrm with HUD that the tribe has eviction

procedures in place, and that they will enforce them

Create legislation that would make section 248 loans

in rst lien (on an Indian reservation where the tribal

courts have jurisdiction over foreclosures)

Permit HUD access for the purpose of servicing

properties.

Other Tribal Conditions on Section 248

LoansMost are assumable upon the sale of the property to

a new buyer/borrower. Conversely, section 248 loans

require the approval of the tribe to be resold. If the FHA

takes back a home in foreclosure, they can attempt to

sell it to another family on the reservation. However,these new borrowers must also receive tribal approval.


12/23




Improve your Home with a Title 1 LoanAlthough there are many FHA home loans, the FHA title 1 loan allows homeowners to borrow money to alter, repair,or improve their properties. The title 1 home improvement loan program was initially enacted to encourage banks

to lend to buyers of manufacturing housing. It has, however, been expanded to other properties as well, including

single family homes and multi-family properties.

Traditionally manufactured housing loans were offered as short term personal loans. Fortunately, the title 1 program

is changing the market by issuing FHA home loans with longer terms (up to 20 years) and lower interest rates. The

program is available in all 50 states, and money is lent through HUD approved lending partners.

Title 1 Home Improvement Loan

GuidelinesThe FHA title 1 program can help you to improve your

home in several ways. There are, however, certain

guidelines as to how you can use a FHA improvement

loan. Eligible home improvements will depend on the

type of home you own:

Multi-family properties: In multi-family homes, the

FHA title 1 program can only be used for building

alterations and repairs. It cannot be used for site

improvements.

Single family properties: With single family homes,the improvement loan can be used for alterations,

repairs or site improvements. This includes major

landscaping jobs, new roofs, additions and bringing

the property up to building and safety codes.

In both cases, the title 1 home improvement loan can

be used in conjunction with other FHA insured loan

programs, such as the 203(k) rehabilitation loan.

Title 1 Home Improvement Loan AmountsTo qualify for the FHA title 1 loan program, you must

also adhere to strict rules concerning maximum loan

amounts, which are:

Manufactured home (personal property): $7,500

Manufactured home (on a permanent foundation):

$17,500

Multifamily structure: $12,000 per living unit up to

$60,000

Single family home: $25,000.

FHA Conditions of Title One LoansThe title 1 loan allows purchasers of manufactured

housing more time to pay off their loans than

conventional loan programs. Your repayment term will

depend on the type of home that you own:

Manufactured home (personal property): 12 years

Manufactured home (on a permanent foundation): 15

years

Multifamily structure: 15 years

Single family home: 20 years.

Other Qualifying Guidelines for the Title 1Loan ProgramBorrowers who wish to apply for the FHA title 1 loan

program can do so through HUD approved lenders,

many of which can be found right here on LendingTree.

com. While these FHA home loans have minimum credit

or maximum income requirements, each individual

lender may impose their own nancial restrictions.

The interest rate set on the title one loans may also be

negotiated directly between the lender and borrower.


13/23




Fixer Upper Loans for The Handyman Special HomeA handyman special is a home which needs only minor repairs to be brought back to retail, or model homecondition. This type of property, also known as a xer upper, is popular with people who like to purchase a home

and tailor it to their tastes.

Some of the ways you can nd a xer upper are:

Attending bankruptcy and foreclosure sales and auctions

Consulting with investors and wholesalers

Perusing bank REO portfolios

Searching for abandoned properties in your neighborhood.

Purchase a House with ConventionalLoansWhen using conventional loans to repair a xer upper,

there are often two steps to follow, and two loans to

obtain. First, the purchase loan is used to acquire the

property, and then the construction loan is used to

make the repairs. This can limit the borrower in that

construction loans are usually very expensive to obtain,

and are usually short term loans.

They also require large cash down payments, which can

be prohibitive for most buyers. After the constructionis completed, the borrower has to renance the

construction loan with a permanent loan and pay new

loan fees. The borrower has gone through two closings,

and paid two sets of loan fees to buy a xer upper.

FHA Home Loans and Handyman Special

HomesFHA home loans can be used to purchase and repair

handyman special homes, all with only one loan. First,

the loan allows the borrower to purchase a house. Then,before they move in, the loan also provides the money

they need to pay for home improvement costs.

If the home improvement costs are more than $35,000,

the borrower must use the 203(k) FHA home loans in

addition. There are maximum loan limits that apply, and

the borrower must use a HUD approved contractor in

order to improve the xer upper. The borrower can even

put an additional six months of principal, interest, taxes

and insurance (PITI) payments into the loan amount tocover the mortgage while they repair the xer upper.

What if you purchase a house and your xer upper has

necessary repairs costing less than $35,000? If so, you

can borrow FHA home loans from the Streamlined K

program.

The New Streamlined K Repair ProgramThis program allows borrowers to purchase and

renovate homes that have home improvement costs

of $35,000 or less. Improvements allowed under the

streamlined K program include:

Basement nishing and remodeling, not involving

structural repairs

Minor remodeling, such as kitchens, not involving

structural repairs

Repair or replacement of existing HVAC systems

Repair or replacement of ooring

Repair or replacement of roofs, gutters and

downspouts

Repair, replacement or addition of exterior decks,patios or porches.

FHA home loans through this program dont require as

stringent an underwriting procedure as the full 203(k)

loan program. It also allows the borrower to complete

the work himself, without having to use an approved

contractor. In this case, however, the borrower needs

to prove that he has the necessary expertise and

experience to perform the work competently.


14/23




Streamline Refinance Programs from the FHAStreamline programs offered through the FHA are loan programs which do not require the full panel of loanunderwriting that other FHA mortgages require. These FHA loan programs are usually quicker to complete than

conventional mortgages, and require much less paperwork.

There are two FHA loan programs that offer streamline renances: the Streamline Renance and the Streamlined K.

The Streamline RefinanceThe FHA provides an easy method of renancing your

existing home loan through HUD approved lenders.

This is done through their streamline renance program.

This allows for quick loan reviews and less intensivedocument processing. The basic requirements are the

following:

No cash may be taken out on mortgages renanced

using the streamline renance process.

The mortgage being renanced must already be an

FHA insured loan.

The renance must result in lower monthly principal

and interest payments.

The streamline renance cant be on a delinquent

mortgage.Some lenders can wrap the costs of the renance into

the new loan amount. This allows the borrower not to

bring any out of pocket money to the closing table.

For those with signicant equity in their homes, this FHA

streamline program can also be done without getting a

new appraisal. Your previous appraisal will sufce, as

long as the renanced mortgage doesnt exceed the

amount of the old mortgage.

The streamline renance program is basically a

renance that affects only term and FHA loan rates.

If you want to tap into your home equity for cash or

to payoff other high interest debt, you cant use the

streamline renance.

You may need to make repairs to your home, and you

only have FHA loan funds available. In this case, you

might want to consider the streamlined K loan program.

The Streamlined K Loan ProgramThe streamlined K program is the streamlined version

of the FHA insured 203(k) loan program. These FHA

loan programs allow borrowers to rehabilitate homes

that need only minor work, up to $35,000 in cost, whilerenancing existing FHA loans.

For example, consider a homeowner with a current

FHA loan in rst position. She wants to make some

minor repairs to her home, like nishing the basement,

or replacing the doors and windows. As long as

the improvement costs are less than $35,000, the

streamlined K program can be used not only to pay for

the repairs, but also to renance the entire existing FHA

loan amount.

For example, lets say an existing loan is $100,000 andhome improvements cost $20,000. The streamlined

K loan program would provide the borrower with

$120,000, assuming she meets the FHA loan programs

guidelines.


15/23




Common FHA Home Loan MythsThe HUD and FHA are the largest insurers of real estate mortgages in the world, and through approved lendingpartners, offer many affordable loan options to eligible borrowers across the United States. Because FHA home

loans are so desirable, uneducated applicants can be targets for scams and companies that practice predatory

lending.

Predatory lenders often perpetuate false information in

an effort to confuse the public and take advantage of

unsuspecting borrowers. Those who dont understand

their loan options are more likely to fall victim to scams

and predatory lending practices.

In an effort to dispel false rumors and educate

borrowers about their loan options, the HUD has posted

information and qualifying loan guidelines for all their

programs online. Additional information is also available

through the many housing and mortgage articles on

LendingTree.com.

Some of the more prevalent rumors you may have heard

are:

I need excellent credit to get an FHA loan:

Currently, the FHA does not have a minimum credit

score requirement to obtain an FHA insured homeloan. However, some FHA approved lenders may

have credit requirements, or may charge high interest

rates for borrowers with lower credit scores.

I need a large down payment to get an FHA home

loan: An FHA insured purchase loan requires only a

cash down payment of 3.5 percent of the purchase

price of the home. This is signicantly lower than

most conventional loan products. In addition, part of

that down payment can come as a gift from a family

member, or even as a seller concession.

Since Ive declared bankruptcy, I dont meet FHAloan requirements: Borrowers are allowed to apply

for an FHA home loan after only two years from the

date of bankruptcy discharge. However, if youve

declared bankruptcy, youll be required to show

proof that youve met all your payment obligations

since then and have had a clean credit record for the

entire two years.

I cant get an FHA insured loan because Ive

been foreclosed on: In fact, you can get an FHA

insured loan even if you have been foreclosed on.

The waiting period is three years from the date offoreclosure, and again, you must show a perfect

credit report since that date. You must demonstrate

that you have met all payment obligations without

any late payments, judgments, or re-defaults.


16/23




Avoiding FHA Loan Scams: What to Watch Out ForA loan scam happens when a person, or group of people, take advantage of a borrower trying to obtain a loan topurchase or renance a home. Because some borrowers dont take the time to understand how loans work, how

theyre made, who offers them and who does not, they make themselves a prime target for a potential scam.

FHA home loans are particularly susceptible to mortgage loan scams, since theyre a highly desirable type of loan.

Types of Mortgage Loan ScamsAs a borrower, there are many mortgage loan scams

that you can fall prey to. Most happen when borrowers

are in an extreme time of need, like when they faceforeclosure.

Some borrowers are convinced to sign over their deed

to fraudulent loan companies who promise the borrower

they can save their home only to get kicked out of the

home or foreclosed upon when the company gets title.

Some scam artists convince borrowers to renance their

mortgage and to take more money than they actually

need. This causes the borrowers payments to increase

which can put them in jeopardy of falling behind in

the mortgage, defaulting, or even losing their home toforeclosure.

Other people pose as loan companies just to get your

personal nancial information like bank accounts and

social security numbers.

Tips to Avoid FHA Loan ScamsThe more educated you are on the process of taking out

a loan the less susceptible you will be to loan scams.

Here are a few tips to make sure you spot a scam in

advance:

1. Always ask for references from real estate agents

you work with and the lenders they refer you to

2. Attend a homeownership education course offered

by HUD

3. Beware of anyone who asks you to pay a fee in

exchange for a counseling service or modication of

a delinquent loan

4. Beware of people who pressure you to sign papers

immediately, or who try to convince you that they

can save your home if you sign or transfer over the

deed to your house5. Never make a mortgage payment to anyone other

than your mortgage company without their approval

6. Never sign a blank document or a document

containing blanks. Also, do not sign anything that

you dont understand; and

7. Shop for a lender and compare costs. Be suspicious

if anyone tries to steer you to just one lender.

RESPA Prevents Loan ScamsThe real estate settlement procedures act (RESPA)

requires all loan originators to provide borrowers with agood faith estimate that clearly discloses key loan terms

and closing costs they will incur as a result of taking

that loan. These items are laid out in an easy to read

form called a settlement statement, also known as a

HUD-1 form.

All reputable lenders use the HUD-1 form in their loan

transactions. If you are working with a lender who does

not provide such a form you may be party to a mortgage

scam.

What to Do if You Are a Victim of a Loan

ScamIf you feel you have been taken advantage of during the

loan process, if the lender has discriminated against

you, or if you are part of a loan scam HUD encourages

you to make a report. You can do this by calling the

Federal Trade Commission (FTC) at 1-877-382-4357, or

by lling out a form on their website.


17/23




What Does an FHA Certified Housing Counselor Do?Some people may want to participate in FHA loan programs, but dont know how to begin. For these individuals,

the United States government offers certied housing counselor services that provide low-cost or free assistance in:

Buying a home Dealing with defaults Handling foreclosures Rectifying credit issues Renting a home.

The service is offered to create a more informed public with respect to the housing industry and credit related

housing decisions.

What a Certified Housing Counselor Can

Do For YouHUD approved housing agencies are available to

everyone in the community. They will meet with anyone

who is interested in learning more about FHA loan

programs, or to provide counseling regarding a specic

transaction.

After interviewing the prospective client to determine

their housing needs, the HUD counselor can perform

the following services:

Assist clients in lling out and submitting loan

applications to approved lenders

Assist clients in making appointments with lenders,

other counselors or agencies

Explain to clients the steps necessary to resolve their

problem, or get permission to take these steps for

clients

Identify resources that might help resolve issues

Monitor clients progress toward resolving issues

Recommend additional private or group counseling

sessions.

Some FHA Loan Programs Require

CounselingYou will be required to work with a HUD certied

housing counselor if you are applying for the following

FHA loan programs:

FHA reverse mortgage (HECM) program

Making Home Affordable program loan modication

and your back-end DTI is 55 percent or greater.

These FHA home loans carry higher risk for the

lenders, so they require more education on the part

of the borrower. A HUD housing counselor has been

specially trained to provide this education. She will

also have access to resources to keep borrowers

from re-defaulting, and seniors from becoming too

overextended on their HECM loans.

HUD Certified Housing Counselor Costs

Most HUD approved counseling agencies are funded bygovernment grants. These grants subsidize their work,

allowing them to offer services to many borrowers at no

cost. HUD counselors may charge a reasonable fee for

the following services:

Pre-purchase consulting

Rental and non-delinquency post-purchase

counseling services

Reverse mortgage help.

In addition to cost structure of the service provided

by counselors, HUD also has specic rules aboutfee disclosure to clients before providing services.

Counseling agencies must:

Inform clients of the fee structure before providing

services

Provide free counseling to those who demonstrate

they cannot afford the fees

Set appropriate fees for services provided.

How to Find a HUD Housing Counselor

If you need help in getting FHA home loans, you cannd a HUD housing counselor anywhere in the country.

Feel free to visit HUDs website to nd a certied

housing counselor in your local area.

Most housing counselors work for local or state non-

prot agencies, which receive funding from the federal

government to assist the public with their housing

needs. These are typically located in urban centers,

near county ofces, or anywhere other public agencies

operate.


18/23




Working with an FHA-Approved Lender for Your Home LoanFHA loans cant be found just anywhere. They can only be made through lenders that have passed a rigorous panelof government tests and certications.

Such lenders are deemed HUD approved lenders, and are allowed to offer their borrowers FHA insured loan

programs.

Why Are Approved FHA Lenders Special?To become an approved FHA lender, banks must pass

several rigorous tests to ensure theyre offering the best

loan products at competitive prices. HUD approved

lenders also certify they do not offer predatory loans orperform any predatory lending practices.

To gain approval, the lender must also:

Carry extensive errors and omissions insurance to

protect against fraud and other loan liability

Display a quality control plan to make sure the loans

they are originating do not exhibit a high risk of

default

Post a delity bond

Prove they have physical loan ofces they cannot

operate virtually or just over the phone.

Put simply, HUD approved lenders are among the

safest, most reputable lenders to borrow from. They

exist to help borrowers obtain the very best loans

possible.

Using HUD Approved CorrespondentsIn addition to banks and other lending institutions,

a borrower can obtain a loan from a correspondent.

Correspondents make mortgage loans available by

lending their own money or pooling money from severaloutside investors.

Most correspondents are smaller lenders who sell their

loans on the secondary market, but retain the right to

service them. These lenders must meet a separate set

of guidelines to become approved by HUD to make FHA

insured loans.

Correspondents are different than mortgage brokers,

who do not lend money. Rather, mortgage brokers

arrange for their borrower clients to obtain loans from

banks and correspondents.

Where to Find HUD Approved LendersThere are approved FHA lenders in every state across

the country, and they offer loans in almost every city and

local area.

There are several ways to nd a HUD approved lender.

Check online: You can check databases online--

look for lenders that have passed HUDs rigorous

requirements and are allowed to make FHA loans to

any borrower that qualies. Review the HUD website: Additional lenders can also

be found via HUDs approved lender list, which is

available on their website.

Call a housing counselor: Finally, you can call a HUD

housing counselor who can not only help you nd an

approved FHA lender in your area, but also ll out the

required paperwork and submit an application for a

FHA home loan.


19/23




HUD and FHA Loan Programs in Your StateFHA insured loans are available in every state across the country. The FHA or HUD doesnt provide the actual loandollars--rather, theyre provided by government lending partners, called approved lenders.

To obtain an FHA insured loan, you apply directly through the approved lender in your area.

Who Offers FHA Home Loans?FHA home loans are offered by several types of

companies. Some of them include:

Commercial banks and credit unions

Loan correspondents State agencies and non-prots.

The bulk of FHA insured loans are made through

commercial and retail banks in major cities across

the country. Typically, they offer market interest rates,

speedy qualifying and low cost processing.

Know Your FHA State Limits and

Maximum Loan AmountsAn FHA insured loan is limited to a maximum loan

amount, which varies depending on your location.

Generally, the maximum loan amount for any one FHA

home loan is $417,000, though areas with higher priced

real estate--such as Los Angeles, Hawaii, and New York

City--have higher loan limits.

While the FHA insured loan program only requires a

down payment of 3.5 percent, if the amount of money

you need exceeds the local maximum loan limit, youll

have to bring the difference to the closing table in

cash, or get part of it as a gift from the seller or a family

member.

For example, if youre considering a home with a

purchase price of $500,000, the 3.5 percent down

payment rule only requires you to bring $17,500 to the

closing table in cash. However, that would make the

resulting mortgage $482,500. If you live in an area where

the maximum loan limit is $417,000, youd have to

bring an additional $65,500 for a total down payment of

$83,000, or 16.6 percent.

Accessing HUD Housing AssistanceIf you want to conrm something a lender told you,

or need to perform research on an approved FHA

lender, you can meet with a HUD housing counselor.

Counselors operate at low cost, or no cost, to the

potential borrower, and provide them with knowledge

to better understand the loan process. HUD counselors

can also help a borrower complete an FHA insured loan

application and submit it to a list of approved lenders.


20/23




HUD Offers Public Housing AssistancePublic housing assistance was established to provide safe housing for eligible low-income families, the elderlyand people with disabilities. FHA loan programs range from providing funds to help revitalize older, run-down

neighborhoods, to giving public housing renters FHA loans to purchase a new home.

The Good Neighbor Program, in particular, has become very popular among FHA loan programs. This program

allows the public to obtain low-cost, affordable housing in areas that have been designated for revitalization.

The Good Neighbor ProgramThis FHA loan programs goal is to encourage

professional people to own and maintain homes in

areas that need revitalization. To do this, they offerHUD owned single family homes to eligible participants

at a discount of up to 50 percent, and with a down

payment of only $100. For example, a HUD owned

home appraised at $100,000 can be purchased for only

$50,000 with FHA loans.

The Good Neighbor Program EligibilityTo be eligible to participate in the FHAs Good Neighbor

program, you must be one of the following:

Fireghter or emergency medical technician: Those

who are employed in these elds full-time by a re

department, medical responder unit of the federal

government, state, local city or an Indian tribe.

Law enforcement ofcer: Those who are sworn to

uphold and make arrests for violations of federal,

state, tribal, county, township or municipal laws. Can

be a police ofcer, sheriff, FBI agent, or one of many

other types of law enforcement ofcials.

Teacher: Those who are employed full-time by

a state-accredited public or private school with

students in grades pre-K through 12.

The eligible buyer must also agree to live in the home

as their personal residence for a full 36 months.

Participants dont need to be rst-time buyers in order

to be eligible for the Good Neighbor program.

These FHA loans can also be combined with other

FHA insured loan programs, such as the 203(k) loan.

This FHA loan allows the borrower to nance home

improvements necessary to make the property safe andhabitable.

HUD Eligible Homes for FHA LoansNot all homes are eligible for the Good Neighbor

Next Door program. Approved homes are available in

Congress designated revitalization areas. These homes

can be accessed through HUD-approved brokers and

real estate agents. You can consult HUDs website to

nd HUD-approved homes for sale and revitalization

areas.

How FHAs Good Neighbor Program

WorksWhen you nd a home youd like to purchase with an

FHA loan, you contact the agent listed along with the

property information and submit a bid for full price.

The accepted bid then receives a discount of up to 50

percent of the purchase price. That discounted amount

is made in the form of a silent second mortgage. No

payments are necessary, as long as the buyer lives inthe home for a full 36 months.

If a borrower leaves before the 36 months are up, or

stops working as an eligible employee, she may be

responsible for paying HUD back on the discount she

received.


21/23




How to Protect Yourself Against Predatory LoansPredatory lending happens when a bank or lender offers a loan at an inated interest rate, charges extra fees thatthey should not charge, or convinces a borrower to take more money on their loan than they can afford. Keep

reading to learn about predatory loans, anti-predatory lending legislation, and where to nd predatory lending help.

If youre a beginner at home lending, it may be hard to

identify subprime lending practices. Predatory loans

usually:

Charge extra fees or false products and services

Charge high interest rates due to race or origin, and

not credit history Arent reasonable for your credit or nancial risk

Pressure you to accept risky loans, interest-only

payments, and high pre-payment penalties.

How Predatory Loans Can Hurt YouPredatory loans hurt everyone involved in the process,

and most importantly the borrower. Most times,

subprime lending mainly causes nancial damage. For

instance, a disreputable appraiser may tell a buyer that

a home is worth more than it really is. That buyer then

overbids on a property, only to nd out after they move

in that the property is not worth that much.

Some victims of subprime lending have been stripped of

their home equity, while others have seen their monthly

payments go up dramatically to the point where they

can no longer afford them. Predatory loans can even

cause borrowers to lose their homes to foreclosure.

Signs of Predatory Loans and Subprime

LendingThere are tell-tale signs of predatory lending practices.

Some of them include:

A lender tells you that they are your only chance of

getting a loan, and discourage comparison shopping.

The cost or loan terms at closing are not what you

agreed to

Youre asked to sign loan documents that are blank

or contain false information.

Anti Predatory Lending PolicyThere are anti predatory lending policies in act to

protect you against subprime lending. The real estate

settlement procedures act (RESPA) requires that all

lenders give borrowers a good faith estimate. Thisdocument, also known as the settlement statement

or HUD-1, contains all loan terms and fees in an easy

to read statement. In order to protect yourself against

predatory loans, review this document before you sign

any loan documents. If you dont receive a HUD-1, you

might be a victim of subprime lending.

Where to Get Predatory Lending HelpYou may have been party to a subprime lending

transaction, or know someone who needs predatory

lending help. If youve fallen for predatory loans, youre

encouraged to call a HUD housing counselor or the

Federal Trade Commission for assistance.


22/23




We hope you enjoyed this guide authored by Craig Grella, compliments of LendingTree.com. Craig Grella

specializes in business, nance, and real estate topics. He has held positions with several national banks

and lending institutions, and has worked with and consulted for small businesses, non-prots, government

municipalities, and Fortune 500 rms alike.

Thanks for trusting LendingTree to help you nd a loan. We put you in control of your loan by asking lenders

to compete for your business. Comparing real loan offers from different lenders just makes sense. Just like

you comparison shop for other large purchases, smart consumers know a loan is no different. Except at

LendingTree, we do all the work, and you reap the benets.

WHY IS LENDINGTREE BETTER?

Low rates: Up to four offers that could lower your

monthly payments.

Personal service: 24/7 customer service and online tools to help you make a smart borrowing decision. Our

Customer Care Consultants will help you understand your options, and help you select the best loan for you.

Our Network: OurLender Network has more than 200 lenders. Some are household names, while others are

smaller, with regional, product or customer segment specialties that may make them ideal for you.

Trust: Join the 20 million people who started their search for a better loan through LendingTree.

Connect with us:

http://blog.lendingtree.com

http://twitter.com/LendingTree

http://facebook.com/LendingTree

http://lendingtree.posterous.com

Contact us:

1-800-555-TREE (8733)

www.lendingtree.com
http://blog.lendingtree.com/http://twitter.com/LendingTreehttp://facebook.com/LendingTreehttp://lendingtree.posterous.com/http://www.lendingtree.com/http://www.lendingtree.com/http://lendingtree.posterous.com/http://facebook.com/LendingTreehttp://twitter.com/LendingTreehttp://blog.lendingtree.com/


23/23


Additional sources of information:

IRS website:www.irs.gov

The Federal Reserve Board:http://www.federalreserve.gov/consumerinfo

Federal Citizen Information Center:www.pueblo.gsa.gov

Department of Housing and Urban Development:www.hud.gov

Center for Responsible Lending:www.responsiblelending.org

DOCUMENT INFORMATION

This material has been prepared by Craig Grella. The opinions contained within this document (which are subject

to change without notice) are those of the author and may not represent LendingTrees (or its afliates) views on

the market. LendingTree (and its afliates) issue publications from time to time for informational, educational and

promotional purposes only. The data and analysis presented are based upon information obtained from sources that

we consider reliable and any mention of levels or prices are indications only and do not represent rm market levels.

Changes in market conditions since the issuance of this document may affect some or all of the levels and prices

listed. We make no warranties, express or implied, regarding the accuracy or completeness of any information,

analysis, or opinions presented. No part of any LendingTree publication may be reproduced in any manner without

the written permission of LendingTree, LLC. LendingTree (and its afliates), its employees, agents, and contractors

are not registered investment advisors, nancial advisors, or broker dealers, and they are not acting in a duciary

capacity. The information contained in this document does not constitute a recommendation, offer to sell, or

solicitation of an offer to purchase any particular investments or products, including without limitation securities

of any companies discussed, and it should not be construed or relied on as such. It is the readers responsibility

to evaluate the suitability, risks, and merits of any investment, funding strategy, or business proposal presented

in this publication. Products mentioned in this document may not be eligible for sale in some states or countries,

nor suitable for all types of investors; their value and the income they produce may uctuate and/or be adversely

affected by exchange rates, interest rates or other factors.
http://www.irs.gov/http://www.pueblo.gsa.gov/http://www.hud.gov/http://www.responsiblelending.org/http://www.responsiblelending.org/http://www.hud.gov/http://www.pueblo.gsa.gov/http://www.irs.gov/

fha hud loan guide

Documents