Participating lenders are insured by the Federal Housing Authority FHA against incurring foreclosure losses as per an authorization by the Department of Housing and Urban Development (HUD).
The caveat is that only loans that are made to borrowers that meet loan limits and guidelines set by congress to qualify, and they can only be for the purchase and occupying of primary residences.
30 or 15 year fixed rate programs are available as well as 1 year adjustable rate (ARM) loans with conservative 1% annual and 5% lifetime caps. Loan amount limits vary by state and county.
These types of programs, referred to as conventional loans, have some very attractive features compared to their non-conventional counterparts:
- Borrowers only need a down-payment of 3.5%, which can be gifted or loaned
- Qualifying FICO credit scores can be in the mid 600s which are very low
- Borrowers may qualify only 2 years after a chapter 7 and 1 year after a chapter 13 bankruptcy
- The pre-payment of the loan is allowed without penalty
- Borrower closing costs can be paid by the seller.
The FHA also offers variations to the program. One such variation has afforded opportunities for the greening of existing homes. Under the FHA 203K program, buyers can include the cost of improving the home into the purchase financing. In this event, the appraiser is allowed to appraise the value of the home at its after improvement value. This is so that the borrower can borrow the funds to purchase the home as well as the required funds to make the improvements. At closing, the seller receives the purchase money while the improvement money is held in escrow and paid to the contractors after the work has been completed. See more information about how this opportunity makes it possible to buy any home green.
Finally all FHA loans qualify for an Energy Efficient Mortgage (EEM) which allows a borrower to borrow additional funds to make the home energy efficient. The main feature of this enhancement to the FHA loan is that it does not require additional qualification. Instead the home qualifies because of the lowered cost of ownership.
Hopefully, the above information has been helpful to you. If not, contact your lender or call me and I can get you in touch with one of my great lenders.
Note: The above information may be different depending on your state and location. Please contact your lender for further or in depth information.
