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.
HOW CAN HUD and the FHA HELP ME BECOME a HOMEOWNER
WHAT IS THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT?
Also known as HUD, the U.S. Department of Housing and Urban Development was established in 1965 to develop national policies and programs to address housing needs in the U.S. One of HUD’s primary missions is to create a suitable living environment for all Americans by developing and improving the country’s communities and enforcing fair housing laws.
HOW DOES HUD HELP HOMEBUYERS AND HOMEOWNERS?
HUD helps people by administering a variety of programs that develop and support affordable housing. Specifically, HUD plays a large role in homeownership by making loans available for lower- and moderate-income families through its FHA mortgage insurance program and its HUD Homes program. HUD owns homes in many communities throughout the U.S. and offers them for sale at attractive prices and economical terms. HUD also seeks to protect consumers through education, Fair Housing Laws, and housing rehabilitation initiatives.
WHAT IS THE FHA?
Now an agency within HUD, the Federal Housing Administration was established in 1934 to advance opportunities for Americans to own homes. By providing private lenders with mortgage insurance, the FHA gives them the security they need to lend to first-time buyers who might not be able to qualify for conventional loans. The FHA has helped more than 26 million Americans buy a home.
HOW CAN THE FHA ASSIST ME IN BUYING A HOME?
The FHA works to make homeownership a possibility for more Americans. With the FHA, you don’t need perfect credit or a high-paying job to qualify for a loan. The FHA also makes loans more accessible by requiring smaller down payments than conventional loans. In fact, an FHA down payment could be as little as a few months rent. And your monthly payments may not be much more than rent.
HOW IS THE FHA FUNDED?
Lender claims paid by the FHA mortgage insurance program are drawn from the Mutual Mortgage Insurance fund. This fund is made up of premiums paid by FHA-insured loan borrowers. No tax dollars are used to fund the program.
WHO CAN QUALIFY FOR FHA LOANS?
Anyone who meets the credit requirements, can afford the mortgage payments and cash investment, and who plans to use the mortgaged property as a primary residence may apply for an FHA-insured loan.
WHAT IS THE FHA LOAN LIMIT?
FHA loan limits vary throughout the country, from $115,200 in low-cost areas to $208,800 in highcost areas. The loan maximums for multi-unit homes are higher than those for single units and also vary by area.
Because these maximums are linked to the conforming loan limit and average area home prices, FHA loan limits are periodically subject to change. Ask your lender for details and confirmation of current limits.
WHAT ARE THE STEPS INVOLVED IN THE FHA LOAN PROCESS?
With the exception of a few additional forms, the FHA loan application process is similar to that of a conventional loan (see Question 47). With new automation measures, FHA loans may be originated more quickly than before. And, if you don’t prefer a face-to-face meeting, you can apply for an FHA loan via mail, telephone, the Internet, or video conference.
HOW MUCH INCOME DO I NEED TO HAVE TO QUALIFY FOR AN FHA LOAN?
There is no minimum income requirement. But you must prove steady income for at least three years, and demonstrate that you’ve consistently paid your bills on time.
WHAT QUALIFIES AS AN INCOME SOURCE FOR THE FHA?
Seasonal pay, child support, retirement pension payments, unemployment compensation, VA benefits, military pay, Social Security income, alimony, and rent paid by family all qualify as income sources. Part-time pay, overtime, and bonus pay also count as long as they are steady. Special savings planssuch as those set up by a church or community association – qualify, too. Income type is not as important as income steadiness with the FHA.
CAN I CARRY DEBT AND STILL QUALIFY FOR FHA LOANS?
Yes. Short-term debt doesn’t count as long as it can be paid off within 10 months. And some regular expenses, like child care costs, are not considered debt. Talk to your lender or real estate agent about meeting the FHA debt-to-income ratio.
WHAT IS THE DEBT-TO-INCOME RATIO FOR FHA LOANS?
The FHA allows you to use 29% of your income towards housing costs and 41% towards housing expenses and other long-term debt. With a conventional loan, this qualifying ratio allows only 28% toward housing and 36% towards housing and other debt.
CAN I EXCEED THIS RATIO?
You may qualify to exceed if you have:
• A large down payment
• A demonstrated ability to pay more toward your housing expenses
• Substantial cash reserves
• Net worth enough to repay the mortgage regardless of income evidence of acceptable credit history or limited credit use less-than-maximum mortgage termsfunds provided by an organization a decrease in monthly housing expenses.
HOW LARGE A DOWN PAYMENT DO I NEED WITH AN FHA LOAN?
You must have a down payment of at least 3% of the purchase price of the home. Most affordable loan programs offered by private lenders require between a 3%-5% down payment, with a minimum of 3% coming directly from the borrower’s own funds.
WHAT CAN I USE TO PAY THE DOWN PAYMENT AND CLOSING COSTS OF AN FHA LOAN?
Besides your own funds, you may use cash gifts or money from a private savings club. If you can do certain repairs and improvements yourself, your labor may be used as part of a down 8 payment (called -sweat equity”). If you are doing a lease purchase, paying extra rent to the seller may also be considered the same as accumulating cash.