If you've ever searched for a home loan you're probably familiar to some extent with FHA home loan programs. What you may not know is that FHA programs are available to more individuals and families than simply those who qualify as first time home buyers. While it's true that first time buyers with limited financial resources are the ones who most often benefit from FHA loans, there are other federally backed loan products that address a variety of needs.
Before we get into those various types of loans, it is important to understand that the Federal Housing Administration (FHA) does not directly loan money to home buyers. Instead, they provide an insurance policy of sorts to banks and other lending institutions who are willing to write these loans. This insurance erases the risk incurred by mortgage lenders so that they can write loans without fear of losing money in the event of default. Perhaps a better way to phrase the FHA program is to say that such loans are FHA-backed.
The Department of Housing and Urban Development does provide direct cash assistance by way of grants to the states. Those grants can be used in conjunction with FHA mortgages but may be restricted by individual states or lender policies. The right combination of an FHA mortgage and HUD grants has been the key to success for many home buyers looking for financing.
FHA First Time Home Buyers Program
Under the first time home buyers program borrowers can finance up to 96.5% of a home's purchase price. That leaves a down payment amount of 3.5% plus closing costs. In addition, borrowers can also finance their mortgage insurance premiums up front which are then rolled into their monthly mortgage payments. The combination of these two benefits makes the FHA first time home buyers program a great resource for those with limited financial means.
The difficulty with these loans lies in the fact that closing costs can be expensive. When you factor in tax adjustments, bank fees, loan points, and other expenses, the buyer may be left with closing costs equal to, or greater than, the total amount of down payment. This can easily double the amount of cash on hand the buyer needs at closing. This is a problem due to the fact that regulatory changes have removed some of the resources home buyers could use to secure this cash. So while it's still easier today to get an FHA mortgage than a conventional one, it certainly is not as easy as it was 10 years ago.
FHA Rehab Loan
The FHA does back rehab loans for individuals who would prefer to buy a "fixer upper" rather than a move-in ready home. Being that these homes need significant repair, the costs associated with the work will be rolled into the mortgage. In terms of the home's value it all washes in the end, because the buyer will get the house at a cheaper price but realize a greater value once the work is complete.
Like the first time home buyers loan, the rehab loan usually allows for a down payment of as little as 3.5%. Lenders will typically add to the loan an amount greater than the proposed cost of rehabilitation as protection against cost overruns. This extra or "contingency" amount usually ranges between 10% and 20% of the total given in the construction proposal. It's important to note that FHA rehab loans are only available to buyers who are willing to certify that they plan to use the home as their primary residence. They are not available to investors, home flippers, or landlords.
FHA Reverse Mortgage
The FHA reverse mortgage is a loan designed for people age 62 or older who want to convert their equity into cash. This type of loan has become very popular among baby boomers who failed to provide sufficiently for their retirement. With this loan the homeowner is able to receive a cash payment no greater than the equity he has built up, and he must remain in the home as its primary resident during the life of the mortgage. The loan does not have to be repaid as long as the homeowner remains the primary resident.
When the homeowner eventually dies or sells the home, the proceeds resulting from that event are then used to pay off the reverse mortgage. Anything left over is given to the estate. In the event the house does not sell at a price high enough to cover the loan, HUD or the FHA may either forgive the balance or seize the house for resale. It is important for homeowners exercising this option to be sure they know the details of the loans being offered.
FHA Loans for Manufactured Homes
Manufactured homes carry with them a whole set of unique circumstances which in turn, call for a unique kind of FHA home loan. In almost every case it is required that manufactured or "mobile" homes be classified as real property before a loan will be issued. In order to gain that classification a manufactured home must be fixed to a permanent foundation. It is very rare, if possible at all, to secure an FHA backed mortgage on a manufactured home in a trailer park. There are some other restrictions and requirements attached to these loans; you may contact the FHA or your mortgage lender for details.