FHA Single Family Home Program
FHA's mortgage insurance programs
help low- and moderate-income families become homeowners by lowering
some of the costs of their mortgage loans. FHA mortgage insurance also
encourages mortgage companies to make loans to otherwise creditworthy
borrowers and projects that might not be able to meet conventional
underwriting requirements, by protecting the mortgage company against
loan default on mortgages for properties that meet certain minimum
requirements--including manufactured homes, single-family and
multifamily properties, and some health-related facilities.
Section 203(b) is the centerpiece of FHA's single-family insurance
programs. It is the successor of the program that helped save
homeowners from default in the 1930s, that helped open the suburbs for
returning veterans in the 1940s and 1950s, and that helped shape the
modern mortgage finance system. Today, FHA One- to Four-Family
Mortgage Insurance is still an important tool through which the
Federal Government expands homeownership opportunities for first-time
homebuyers and other borrowers who would not otherwise qualify for
conventional loans on affordable terms, as well as for those who live
in underserved areas where mortgages may be harder to get. In FY 1997,
FHA insured more than 790,000 homes, valued at almost $60 billion,
under this program. FHA currently insures a total of about 7 million
loans valued at nearly $400 billion. These obligations are protected
by FHA's Mutual Mortgage Insurance Fund, which is sustained entirely
by borrower premiums.
Section 203(b) has several important features:
Down payment requirements can be low. In contrast to
conventional mortgage products, which frequently require down payments
of 10 percent or more of the purchase price of the home, single-family
mortgages insured by FHA under Section 203(b) make it possible to
reduce down payments to as little as 3 percent. This is because FHA
insurance allows borrowers to finance approximately 97 percent of the
value of their home purchase through their mortgage, in some cases.
Many closing costs can be financed. With most conventional
loans, the borrower must pay, at the time of purchase, closing costs (fees and charges associated with buying a home) equivalent
to 2-3 percent of the price of the home. This program allows the
borrower to finance many of these charges, thus reducing the up-front
cost of buying a home. FHA mortgage insurance is not free: borrowers
pay an up-front insurance premium (which may be financed) at the time
of purchase, as well as monthly premiums that are not financed, but
instead are added to the regular mortgage payment.
Some fees are limited. FHA rules impose limits on some of the
fees that mortgage companies may charge in making a loan. For example,
the loan origination fee charged by the mortgage company for the
administrative cost of processing the loan may not exceed one percent
of the amount of the mortgage.
HUD sets limits on the amount that may be insured. To make sure
that its programs serve low- and moderate-income people, FHA sets
limits on the dollar value of the mortgage loan.
