Understanding FHA Home Loans
Millions of Americans have been helped by the Federal Housing Administration (FHA) and millions of Americans have been able to secure their dream of becoming homeowners since the FHA began in 1934.
What the FHA provides is mortgage insurance on loans that are created by approved lenders throughout the United States and the territories owned by the United States. Whether for multifamily, single family, hospitals, or manufactured homes, the FHA aids in the issuance of mortgages and is the world’s largest insurer or mortgages and has a number of different programs.
Comparing FHA Loans to Conventional Mortgages
The standard FHA loan is quite popular because it only requires a 3.5% down payment, rather than the 20% down payment required by a conventional fixed-rate mortgage. To offset the increased risk from a smaller initial down-payment, FHA loans require two mortgage insurance premiums. One of these is a monthly charge, and the other can be paid upfront or rolled into the loan.
- Annual Mortgage Insurance Premium - This is a monthly charge which goes into your mortgage payment. Calculation of it is based upon loan size, loan length and the borrower's loan-to-value (LTV). The annual premium ranges from 0.45% for short duration loans with over 10% equity to 1.55% for longer duration loans with almost no equity.
- Upfront Mortgage Insurance Premium - This is an upfront charge which is 1.75% of the home loan. This can be rolled into the mortgage or paid upfront at closing.
In addition to their general loan program, a few of their other more specific programs are described below.
CHDAP Down Payment Assistance
CHDAP, or California Housing Down Payment Assistance Programs, assist the homebuyer in buying a home without putting money down through the use of an FHA loan and 3% CHDAP silent second.
The CHDAP silent second defers payments until the property is refinanced or sold, but it is never completely forgiven.
The CHDAP loan program has some basic qualifications:
- The household income of the borrower cannot exceed the median income for that area.
- FHA loans limit the maximum sales price
- Only California properties are covered
- The Borrower cannot have owned a home in their name within the past three years.
- Must qualify for an FHA loan
Good Neighbor Next Door
The Good Neighbor Next Door program is the new merged name for the next two categories available to law enforcement officers and teachers. In addition, the program is available to firefighters and emergency medical technicians.
Officer Next Door Program
The Officer Next Door Program, or OND, is an initiative that offers HUD-acquired homes for single families to public police officers. The officers may be eligible for these benefits:
- A discount of 50% off of the appraised value of the home
- A down payment of $100
Through the Officer Next Door program, homes are offered by HUD in designated revitalization areas. These areas are usually in low-and moderate-income neighborhoods, contain many properties that are vacant, and have high crime rates, but these areas are considered to be good candidates for improvement and economic development.
Homes that are for sale in the program were insured through the FHA at one time and then foreclosed upon for some reason. HUD also lowers the amount of the down payment to $100 if the home is purchased through an FHA insured mortgage.
Below are the requirements Officers must meet in order to be eligible for the program:
- The property must be their sole residence for a minimum of three years after the purchase of the property.
- The officer must be a sworn law enforcement officer who works full-time for a city, state, county, or Federal law enforcement agency. The officer must have the power to arrest-not just be limited to a particular facility or building.
The officer should be pre-approved and have a letter of commitment in order to be approved for the loan and purchase an Officer Next Door Home.
Teacher Next Door Program
The Teacher Next Door, or TND, program offers single family homes offered by HUD to public school teachers. Teachers can acquire a 50% discount off of the home’s appraised value and only be required to pay a $100 down payment.
Through the Teacher Next Door Program, the homes offered by HUD are located in areas needing revitalizations. These areas are typically in low-and moderate-income neighborhoods, there are many vacant properties, and the crime rate tends to be high. These areas are considered to be good candidates for improvement and economic development.
Homes that are for sale in the program were insured through HUD at one time and then foreclosed upon. HUD only requires a down payment of $100 if the home is acquired through an FHA insured mortgage.
Below are the requirements that teachers must meet in order to use this particular program:
- The property must be the teacher’s sole residence for a minimum of three years after purchasing the home.
- A teacher is a person who is employed full-time by a public, private, Municipal, county, state or Federal educational institution. They must be a state-certified teacher for the classroom or an administrator for the grades K-12.
In order for a teacher to purchase a Teacher Next Door Home, the teacher must be pre-approved and have a letter of commitment in order for the loan to be approved.
Nehemiah Down Payment Assistance Program
Nehemia was canceled in 2008.
A gift of up to 3% of the final sales price will be given by Nehemian to a qualified buyer for the down payment. This allows the buyer to purchase the home without a down payment combined with the FHA loan. This program does require the cooperation of the home seller.
The Nehemiah Down Payment Assistance Program is a private California non-profit housing corporation and is not a government program. The program gives money or “gifts” to qualified buyers to purchase what are called Nehemiah properties all over the United States.
Before the schedule of a Nehemiah transaction is scheduled, Nehemiah delivers the buyer 3% gift money taken from a pool of existing funds and delivers that money to the closing company. The seller of the home then makes a contribution only after the deal has been closed. Nehemiah uses its own money from an already existing trust fund.
There are two simple steps when using the Nehemiah program to acquire a home:
- Pre-approval for the FHA loan.
- Once the loan is approved, a home must be found and the Realtor write up the offer by using the Nehemiah program
HART Down Payment Assistance Program
HART was canceled in 2008.
Housing Action Resource Trust, or Hart, is a 501 (c)(3) non-profit community development and housing corporation in California. It services selected communities all over the United States.
HART provides individuals and families with down payment assistance in the for of a “gift” while adhering to the following guidelines:
- HART will provide a gift of up to $15,000 for down payment and the closing costs.
- The gift does not require repayament
- The homebuyer only needs to provide 1% of the sales price on their own.
- 1-4 unit homes can be purchased through the HART program
- Pre-purchase counseling must be completed.
HART does require the cooperation of the seller in this type of transaction.