How can I buy a HUD Home?
Anyone can purchase a HUD Home as long as you have the cash to purchase the home or you can qualify for a loan to purchase it. HUD Homes are sold through a bid process and you will need a HUD-approved real estate agent to assist you with that bid process. HUD will even pay that real estate agent's fee.
HUD Homes are sold "as-is," without warranty. That means that HUD will not pay to correct any problems. But even if a HUD Home needs fixing up - and not all of them do - it can be a real bargain! For example, HUD's asking price on the home will reflect the fact that the buyer will have to invest money to make improvements.
HUD might offer special incentives such as an allowance to upgrade the property, a moving expense allowance, or a bonus for closing the sale early, and keep in mind that on most sales, the buyer can request HUD to pay all or a portion of the financing and closing costs. Your real estate agent will have details. We encourage you to get the home professionally inspected before you make an offer so you will know what repairs you may have to make BEFORE you submit your bid.
Start your HUD Home buying process by finding a participating real estate agent. Your real estate agent must submit your bid for you. Normally, HUD Homes are sold in an "Offer Period." At the end of the Offer Period, all offers are opened and, basically, the highest reasonable bid is accepted. If the home isn't sold in the initial Offer Period, you can submit a bid until the home is sold. Bids can be submitted any day of the week, including weekends and holidays. They will be opened the next business day. If your bid is acceptable to HUD, your real estate agent will be notified, usually within 48 hours. You'll be given a settlement date, normally within 30-60 days, by which you need to arrange financing and close the sale.
How can FHA help me buy a home?
FHA insured mortgages offer many benefits and protections that only come with FHA:
- Easier to Qualify: Because FHA insures your mortgage, lenders may be more willing to give you loan terms that make it easier for you to qualify.
- Less than Perfect Credit: You don't have to have a perfect credit score to get an FHA mortgage. In fact, even if you have had credit problems, such as a bankruptcy, it's easier for you to qualify for an FHA loan than a conventional loan.
- Low Down Payment: FHA loans have a low 3% downpayment and that money can come from a family member, employer or charitable organization as a gift. Other loan programs don't allow this.
- Costs Less: FHA loans have competitive interest rates because the Federal government insures the loans. Always compare an FHA loan with other loan types.
- Helps You Keep Your Home: The FHA has been around since 1934 and will continue to be here to protect you. Should you encounter hard times after buying your home, FHA has many options to help you keep you in your home and avoid foreclosure.
FHA does not provide direct financing nor does it set the interest rates on the mortgages it insures. For the best interest rate and terms on a mortgage, you should compare mortgages from several different lenders. In order to initiate the loan application process, please contact an FHA approved lender.
An FHA insured mortgage may be used to purchase or refinance a new or existing 1-4 family home, a condominium unit or a manufactured housing unit (provided the manufactured housing unit is on a permanent foundation).
What are the advantages of refinancing to a fixed rate FHA mortgage?
There are significant advantages to refinancing to an FHA mortgage with a fixed interest rate, particularly if you currently have a higher cost mortgage or have a mortgage that has an adjustable or a variable interest rate, optional payments or interest only payments that will increase in the near future. Borrowers with adjustable or variable interest rate mortgages or interest only payment mortgages often encounter much higher monthly payments ("payment shock") after having the mortgage for just a few years.
FHA fixed interest rate mortgages cost less. FHA loans have competitive interest rates because the Federal government insures the loan. A fixed interest rate FHA loan will have a low interest rate compared to a subprime loan and the FHA loan will have fixed payments of principal and interest compared to an adjustable rate or variable interest rate mortgage or a mortgage with optional or variable payments.
You don't have to have perfect credit to get an FHA fixed rate mortgage. Even if you have had credit problems, such as a bankruptcy, you may still qualify for an FHA mortgage. Should you encounter hard times after refinancing your home, FHA has programs to help you keep you in your home and avoid foreclosure.
FHA does not provide direct financing nor does it set the interest rates on the mortgages it insures. For the best interest rate and terms on a mortgage, you should compare mortgages from several different lenders.
An FHA fixed interest rate mortgage may be used to refinance a new or existing 1-4 family home, a condominium unit or a manufactured housing unit (provided the manufactured housing unit is on a permanent foundation).
What are the basic eligibility requirements for FHA financing?
FHA insures mortgages made by approved lenders to individuals and non-profit and government agencies that are approved to participate in HUD's programs; HUD does not loan money to homebuyers.
Generally, to be eligible for an FHA loan, you must have a valid social security number and have lawful residency in the United States and be of a legal age to sign on a mortgage in your state. Lenders will verify income, assets, liabilities, and credit history for all parties on the loan. With an FHA loan, you cannot take an ownership interest in a property without qualifying for the loan.
FHA's mortgage programs do not typically have maximum income limits for qualifying, although you must have sufficient income to qualify for the mortgage payment and other debts. Income limits may be present when qualifying for down payment assistance or other secondary financing programs (including those funded by HUD) that may be used in conjunction with an FHA loan.
FHA does not have minimum credit score requirements, although past credit performance serves as the most useful guide in determining a borrower's attitude toward credit obligations and predicting a borrower's future actions. Using FHA's guidelines, lenders will make a credit determination based on the merits of each case. To find out if you qualify, and how much you can borrow based on your income and debts, you should contact a HUD-approved lender.
What is the FHASecure refinance program?
Under the new "FHASecure" refinance program, FHA will allow families with acceptable credit histories who had been making timely mortgage payments before the interest rate on their adjustable rate mortgages reset-but are now in default-to qualify for refinancing to an FHA mortgage.
The basic requirements of the FHASecure program are:
- The mortgage being refinanced must be a non-FHA Adjustable Rate Mortgage (ARM) and the interest rate has reset.
- The homeowner is now delinquent in making payments on the mortgage after the reset.
- The homeowner's payment history must show that, prior to the reset of the interest rate on the mortgage, the homeowner was current in making the monthly mortgage payments, i.e., the homeowner's mortgage payment history during the 6 months prior to the interest rate reset showed no instances of making mortgage payments outside the month due.
- The homeowner has sufficient income to qualify for an FHA mortgage.
If there is sufficient equity in the home, FHA will allow missed mortgage payments to be included in the FHA refinance mortgage, if the arrearages arose after the interest rate reset or the homeowner may be able to use a second mortgage to finance the missed payments.
Does FHA have a refinance program that will help borrowers who have high cost adjustable rate mortgages where the interest rate has recently reset?
Under the new "FHASecure" program, FHA will allow families with acceptable credit histories who had been making timely mortgage payments before the interest rate on their adjustable rate mortgages reset-but are now in default-to qualify for refinancing to an FHA mortgage.
The FHASecure program will operate under the same safe guidelines as FHA's existing mortgage insurance program. Eligible homeowners will be required to meet strict underwriting guidelines and pay a mortgage insurance premium, which offsets the risk to FHA's insurance fund.
Eligibility Highlights of the FHASecure Initiative:
- The mortgage being refinanced must be a non-FHA Adjustable Rate Mortgage (ARM) and the interest rate has reset.
- The borrower must be delinquent on his mortgage payments after the reset.
- The borrower's payment history on the non-FHA ARM must show that, prior to the reset of the interest rate on the mortgage, the borrower was current in making the monthly mortgage payments, i.e., the homeowners mortgage payment history during the 6 months prior to the reset showed no instances of making mortgage payments outside the month due.
- If there is sufficient equity in the home, FHA will allow missed mortgage payments to be included in the FHA refinance mortgage, if the arrearages arose after the reset.
- Under certain conditions FHA will insure first mortgages where (1) the existing note holder writes off the amount of indebtedness that cannot be refinanced into the FHA insured mortgage; or (2) either the FHA-approved lender making the new FHA mortgage or the existing note holder may take back a second lien that includes closing costs, arrearages or previous secondary financing if the indebtedness exceeds FHA's maximum LTV ratio and maximum loan limit.
- Lenders must determine, as part of the underwriting process, that the reset of the non-FHA ARM monthly payments caused the borrower's inability to make the monthly payments and that the borrower has sufficient income and resources to make the monthly payments under the new FHA refinance mortgage.
- If the new FHA refinance mortgage is not enough to pay off the existing first lien, closing costs and arrearages, the lender may execute a second lien at closing to pay the difference. The combined amount of the FHASecure first mortgage and any subordinate non-FHA insured lien may exceed the applicable FHA loan-to-value ratio and geographical maximum loan limit. If payments on the second are required, they must be included in qualifying the borrower. If payments are deferred, they must be so for no less than 36 months to not be considered in the qualifying ratios. Borrowers need not yet have missed any mortgage payments to be eligible for this type of subordinate financing.
What is the FHASecure refinance program?
FHASecure allows homeowners with a history of on-time mortgage payments under their original interest rates, but who missed payments after their rates reset, to refinance into FHA's mortgage insurance program. Other families with high-cost mortgages and mortgages that are due to reset, but who are still current on their loans, may also be able to refinance through FHASecure.
HUD's Federal Housing Administration (FHA) is on target to insure more than a quarter of a million FHASecure home loans in Fiscal Year 2008, further evidence of FHA's commitment to homeownership and helping people safeguard their investment in the American Dream.
Since the creation of FHASecure, FHA insured refinancing has increased 125 percent over the past year, and is expected to increase even more in 2008 as more homeowners examine their mortgage options.
How can FHA help me if I am behind in my mortgage payments?
FHA insures your mortgage; therefore, your lender has to follow FHA servicing guidelines and regulations. You should first contact your lender's Loss Mitigation Division to seek a workout solution, but if your lender is non-responsive, then you will need to contact FHA's National Servicing Center. All requests for information or clarification of policy on servicing related issues should be directed to the FHA National Servicing Center (NSC).
What foreclosure prevention options are available on non-FHA insured mortgages?
- Contact your lender if you are behind in your mortgage payments.
- A good deal of information which HUD provides may apply to individuals that have a VA or conventional loan who are in danger of losing their homes. Visit http://www.hud.gov/foreclosure/index.cfm for more information.
- Contact a HUD-approved housing counseling agency and they will help you assess your financial situation, determine what options are available to you, and help you negotiate with your lender.
What is the American Dream Down Payment Initiative?
The American Dream Down Payment Initiative (ADDI) provides down payment, closing costs, and rehabilitation assistance to eligible individuals through grant funding administered by local housing agencies that receive HOME funds from HUD. To be eligible, you must be first-time homebuyers (defined as an individual and his or her spouse who have not owned a home during the three-year period prior to the purchase and have incomes not exceeding 80% of area median income). ADDI funds may be used to purchase one- to four- family housing, condominium unit, cooperative unit, or manufactured housing.
The American Dream Down payment initiative is one of many HUD-funded grant programs available on the state and local level. To find out more information on your local homeownership and repair programs, visit the following web site: http://www.hud.gov/buying/localbuying.cfm.
Who is eligible for an FHA reverse mortgage?
To be eligible for a federally insured Home Equity Conversion Mortgage (HECM), or reverse mortgage, all borrowers must be at least 62 years or older, own and occupy the property, and should have either no mortgage or one small enough to be paid off with the proceeds of the HECM loan. Life estates and living trusts may also qualify. All borrowers must also have attended counseling from a HUD approved counseling agency.
The property may be an existing single family home, condominium unit, a manufactured home, or a 2-4 family residential unit as long as the borrower occupies one of the units. Newly constructed residences are also eligible provided that a certificate of occupancy (or equivalent) has been issued for the new home by the local authority, the new home is 100% complete, and the owner is occupying the new home. Both existing and new units must meet HUD eligibility standards.
When can I stop paying my monthly FHA mortgage insurance premium?
Termination of the FHA monthly mortgage insurance premium (MIP) is based on several factors including: the loan term, loan-to-value (LTV) at loan origination and regulations in place when the loan is closed. Generally, loans closed prior to January 1, 2001 will not be eligible for termination of MIP, which is collected as part of your monthly mortgage payment.
For loans closed on or after January 1, 2001, FHA's MIP will be automatically terminated under the following conditions:
1. For mortgages with terms more than 15 years, the MIP will be terminated when the Loan to Value (LTV) ratio reaches 78%, provided the borrower has paid the MIP for at least five years. If the LTV reaches 78% and the borrower has not paid MIP for at least five years then the borrower must continue to pay MIP until the five year requirement is met.
2. For mortgages with terms 15 years and less and with LTV ratios of 90% and greater, the MIP will be terminated when the LTV ratio reaches 78%, irrespective of the length of time the borrower has paid the MIP.
3. Mortgages with terms 15 years and less and with LTV ratios of 89.99% and less will not be charged MIP.
Although the MIP will be terminated as described, the FHA insurance will remain in force for the loan's full term. This MIP termination provision only applies to loans where the borrower also paid an Up-front MIP at closing.
FHA will determine when a borrower has reached the 78% LTV ratio based on the lesser of the sales price or appraised value at loan origination. For example, if the lesser of the sales price or the appraised value at origination was $100,000, when the loan amount reaches $78,000, HUD will no longer collect MIP on the loan.
FHA's regulations do not permit a borrower to submit a new appraisal to reach the threshold for termination of MIP. Termination of MIP will normally be based on the scheduled amortization of the loan. However, borrowers may reach the 78% threshold in advance of the scheduled amortization because of prepayments of loan principal. A borrower whose loan reaches the 78% LTV threshold sooner than projected because of prepayment may have the MIP terminated (but not sooner than five years from loan closing for loans with terms greater than 15 years) if the borrower has not been more than 30 days delinquent in paying the mortgage payments during the previous 12 months.
The borrower must submit a termination request to the lender and the lender must provide the borrower's request and supporting documentation with respect to the mortgage payments during the last 12 months to FHA for such termination.