Source: www.hud.gov. For more information or an appointment with a HUD-certified counselor, contact the Southeast Community Development Corporation at 410-342-3234 www.southeastcdc.org.
MORE ABOUT MORTGAGE INSURANCE
WHAT IS PMI?
PMI stands for Private Mortgage Insurance or Insurer. These are privately-owned companies that provide mortgage insurance. They offer both standard and special affordable programs for borrowers.These companies provide guidelines to lenders that detail the types of loans they will insure. Lenders use these guidelines to determine borrower eligibility. PMI’s usually have stricter qualifying ratios and larger down payment requirements than the FHA, but their premiums are often lower and they insure loans that exceed the FHA limit.
WHAT IS A 203(b) LOAN?
This is the most commonly used FHA program. It offers a low down payment, flexible qualifying guidelines, limited lender’s fees, and a maximum loan amount.
WHAT IS A 203(k) LOAN?
This is a loan that enables the homebuyer to finance both the purchase and rehabilitation of a home through a single mortgage. A portion of the loan is used to pay off the seller’s existing mortgage and the remainder is placed in an escrow account and released as rehabilitation is completed. Basic
guidelines for 203(k) loans are as follows:
• The home must be at least one year old.
• The cost of rehabilitation must be at least $5,000, but the total property value – including the cost of repairs – must fall within the FHA maximum mortgage limit.
• The 203(k) loan must follow many of the 203(b) eligibility requirements.
• Talk to your lender about specific improvement, energy efficiency, and structural guidelines.
WHAT IS AN ENERGY EFFICIENT MORTGAGE (EEM)?
The Energy Efficient Mortgage allows a homebuyer to save future money on utility bills. This is done by financing the cost of adding energy-efficiency features to a new or existing home as part of an FHA-insured home purchase. The EEM can be used with both 203(b) and 203(k) loans. Basic
guidelines for EEMs are as follows:
• The cost of improvements must be determined by a Home Energy Rating System or by an energy consultant. This cost must be less than the anticipated savings from the improvements.
• One- and two-unit new or existing homes are eligible; condos are not.
• The improvements financed may be 5% of property value or $4,000, whichever is greater. The total must fall within the FHA loan limit.