Your Free Guide to FHA Mortgage Loans
Your Free Guide to FHA Mortgage Loans
We are privately owned and not affiliated with the government in any way or form. Our team of writers has researched FHA loans to create this guide to assist consumers.
What is an FHA loan?
An FHA loan is a mortgage loan that is insured by the federal government’s Federal Housing Administration (FHA), an agency within the Department of Housing and Urban Development (HUD). The FHA is one of the biggest mortgage insurers in the world and has insured over 46 million mortgages since it was founded in 1934.
Today, the Federal Housing Administration insures more than 8 million single-family home mortgages in the United States.
The FHA does not directly lend funds to homebuyers. It insures loans made by FHA-approved lenders. This means that if a homeowner with an FHA loan stops making mortgage payments without making other suitable arrangements, FHA will take legal possession of the home in a process called foreclosure. Then the FHA will pay a monetary amount called a claim to the lender, sell the home and repay the amount due to the lender. Visit the section titled Avoiding Foreclosure.
FHA is a self-supporting government agency and does not require taxpayer money; it uses the funds it takes in from mortgage insurance premium payments. Visit the section titled FHA Loan Terms for more information.
The purposes of FHA loans are as follows:
- To reduce risk for the lenders,
- To increase the availability of mortgage loans to prospective homebuyers, and
- To make mortgages more affordable.
Who is an FHA loan meant for?
FHA loans are designed to allow people to buy a home who otherwise may not have been approved for a mortgage because they have low to moderate income, low credit scores and/or higher amounts of household debt. In addition, FHA loans are meant for higher risk borrowers who would otherwise have to resort to a more expensive subprime mortgage.
In a subprime mortgage, a lender approves certain high risk borrowers but at a significantly higher interest rate than lower risk borrowers. Because higher interest rates directly increase the amount of monthly payments and the amount paid over the life of the loan, high interest rate mortgages may become unaffordable for low- to moderate-income borrowers, leading to a high incidence of foreclosure. Subprime mortgages are not government-insured.
Did You Know?
FHA loans are available to both first-time and repeat homebuyers. Because of their lower eligibility requirements, FHA loans are particularly popular with first-time homebuyers.
Different Types of FHA Loans
References to FHA loans in documents, articles or online, refer to Basic Home Mortgage Loans, also called Section 203(b) loans. This is because the majority of FHA loans are Basic Home Mortgage Loans. This applies to the majority of this guide as well; Unless otherwise noted, “FHA loans” will refer to Basic Home Mortgage Loans.
Other types of FHA loans are listed in the section under Other FHA & HUD Programs.
FHA loans are available as fixed rate mortgages, which means the interest rate and payments stay the same for the life of the loan, as well as adjustable rate mortgages (ARMs).
An ARM is a mortgage in which there is an initial interest rate that stays the same for a specified period of time, after which it can go up or down, as market conditions dictate. This means that the monthly mortgage payment could potentially be higher or lower going forward than it was at the outset of the loan.
Contact Information for the FHA Loan Program
The Federal Housing Administration (FHA) is part of the Department of Housing and Urban Development (HUD). If you have questions, comments or concerns about the homebuying process, you can contact the resource centers or main offices of the HUD.
National Contact Information
|HUD Headquarters||451 7th Street S.W.|
Washington, DC 20410
Phone: (202) 708-1112
|FHA Resource Center||Phone: (800) 225-5342|
FHA FAQs: https://www.hud.gov/answers
|HUD Native American Programs||Phone: (800) 735-3239|
|Housing Counseling Line||Phone: (800) 569-4287|
|Title 1 Property Improvement Loan Program Customer Service||Phone: (800) 733-4663|
Visit the section called Title 1 Property Improvement Loan to learn more.
|Public Housing Agency Contact Information||Click here to find your local PHA and its contact information: https://www.hud.gov/program_offices/public_indian_housing/pha/contacts.|
State and Territory Contact Information
Most states have one central HUD office location, however some states have more than one. Native Americans and Alaskan Natives should contact the office in the state where they reside.
Please choose your state from the drop-down list below:
|State||Office Name & Address||Contact Information|
|AL||Birmingham Field Office|
950 22nd Street North
Birmingham, AL 35203-5302
|Phone: (205) 731-2617|
Fax: (205) 731-2593
TTY: (800) 548-2546
|AK||Anchorage Field Office|
3000 C Street, Suite 401
Anchorage, AK 99503
|Phone: (907) 677-9800|
Fax: (907) 677-9803
TTY: (907) 677-9825
|AZ||Phoenix Field Office|
One North Central Avenue, Suite 600
Phoenix, AZ 85004
|Phone: (602) 379-7100|
Fax: (602) 379-3985
TTY: (800) 877-8339
|AR||Little Rock Field Office|
425 West Capitol Avenue, Suite 1000
Little Rock, AR 72201-3488
|Phone: (501) 918-5700|
Fax (501) 324-6142
TTY (800) 877-8339
|CA, American Samoa, Guam, & Northern Mariana Islands||San Francisco Regional Office|
One Sansome Street, Suite 1200
San Francisco, CA 94104
|Phone (415) 489-6400|
Fax (415) 489-6419
TTY (213) 894-8133
|CA||Los Angeles Field Office|
300 North Los Angeles Street, Suite 4054
Los Angeles, CA 90012
|Phone (213) 894-8000|
Fax (213) 894-8107
TTY (213) 894-8133
|CA||Santa Ana Field Office|
Santa Ana Federal Building
34 Civic Center Plaza, Room 7015
Santa Ana, CA 92701-4003
|Phone (714) 796-5577|
Fax (202) 485-5705
TTY (213) 894-8133
|CO||Denver Regional Office|
1670 Broadway, 25th Floor
Denver, CO 80202-4801
Fax (303) 672-5004
TTY (303) 672-5022
|CT||Hartford Field Office|
One Corporate Center
20 Church Street, 10th Floor
Hartford, CT 06103-3220
|Phone (860) 240-4800|
Fax (860) 240-4850
TTY (800) 877-8339
|DE||Wilmington Field Office|
One Rodney Square
920 North King Street, Suite 404
Wilmington, DE 19801-3016
|Phone (681) 781-8945|
TTY (800) 877-8339
|DC||Washington, DC Field Office|
820 First Street NE, Suite 300
Washington, DC 20002-4205
|Phone (202) 275-9200|
Fax (202) 275-6385
TTY (202) 275-6388
|FL||Miami Field Office|
Brickell Plaza Federal Building
909 SE First Avenue, Room 500
Miami, FL 33131-3028
|Phone (305) 536-4456|
Fax (305) 536-5765
TTY (305) 536-4743
|FL||Jacksonville Field Office|
Charles East Bennett Federal Building
400 West Bay Street, Suite 1015
Jacksonville, FL 32202
|Phone (904) 232-2627|
Fax (904) 232-3759
No TTY number available
|GA||Atlanta Regional Office|
Five Points Plaza Building
40 Marietta Street
Atlanta, GA 30303-2806
|Phone (404) 331-5136|
Fax (404) 730-2392
TDD: (404) 730-2654
|HI||Honolulu Field Office|
1132 Bishop Street, Suite 1400
Honolulu, HI 96813-4918
|Phone (808) 457-4662|
Fax (808) 457-4694
TTY (808) 522-8193
|ID||Boise Field Office|
1249 S Vinnell Way, Suite 108
Boise, ID 83709
|Phone (208) 334-1990|
Fax (208) 334-9648
No TTY number is available
|IL||Chicago Regional Office|
Ralph Metcalfe Federal Building
77 West Jackson Boulevard
Chicago, IL 60604-3507
|Phone (312) 353-6236|
Fax (312) 913-8293
TTY (312) 353-7143
|IN||Indianapolis Field Office|
Minton Capehart Federal Building
575 North Pennsylvania Street, Suite 655
Indianapolis, IN 46204
|Phone (317) 226-6303|
No email listed
Fax (317) 957-7382
TTY (800) 743-3333
|IA||Des Moines Field Office|
210 Walnut Street, Room 937
Des Moines, IA 50309-2155
|Phone (515) 284-4512|
Fax (515) 284-4743
TTY (800) 877-8339
|KS||Kansas City Regional Office|
400 State Avenue, Room 200
Kansas City, KS 66101-2406
(Office also covers western portion of MO; for eastern portion of MO, see St. Louis, MO)
|Phone (913) 551-5462|
Fax (913) 551-5469
TTY (800) 877-8339
|KY||Louisville Field Office|
Gene Snyder Courthouse
601 West Broadway, Room 110
Louisville, KY 40202
|Phone (502) 582-5251|
Fax (502) 582-6074
TTY (800) 648-6056
|LA||New Orleans Field Office|
Hale Boggs Federal Building
500 Poydras Street, 9th Floor
New Orleans, LA 70130
|Phone (504) 671-3000|
Fax (504) 671-3751
TTY (800) 877-8339
|ME||Bangor Field Office|
202 Harlow Street, Suite D2000
Bangor, ME 04401-4901
|Phone (207) 945-0467|
Fax (207) 945-0533
TTY (800) 877-8339
|MD||Baltimore Field Office|
Bank of America Building–Tower II
100 South Charles Street, 5th Floor
Baltimore, MD 21201
|Phone (410) 962-2520|
Fax (410) 209-6670
TTY (800) 877-8339
|MA||Boston Regional Office|
Thomas P. O’Neill, Jr.Federal Building
10 Causeway Street, 3rd Floor
Boston, MA 02222-1092
|Phone (617) 994-8200|
Fax (617) 565-6558
TTY (617) 565-5453
|MI||Detroit Field Office|
McNamara Federal Building
477 Michigan Avenue
Detroit, MI 48226-2592
|Phone (313) 226-7900|
No email listed
Fax (313) 226-5611
TTY (313) 226-6899
|MN||Minneapolis Field Office|
212 Third Avenue South, Suite 150
Minneapolis, MN 55401
|Phone (612) 370-3000|
No email listed
Fax (612) 370-3218
TTY (612) 370-3186
|MS||Jackson Field Office|
Dr. A. H. McCoy Federal Building
100 West Capitol Street, Room 910
Jackson, MS 39269-1096
|Phone (601) 965-4757|
Fax (601) 965-4773
TTY (601) 965-4171
|MO||St. Louis Field Office|
1222 Spruce Street, Suite 3.203
St. Louis, MO 63103-2836
(Office covers eastern portion of MO; for western portion of MO, see Kansas City, KS)
|Phone (314) 418-5400|
No email listed
Fax (314) 539-6384
TTY (314) 418-5219
|MT||Helena Field Office|
Paul G. Hatfield US Courthouse
901 Front Street, Suite 1300
Helena, MT 59626
|Phone (406) 449-5050|
Fax (406) 449-5052
TTY (800) 877-8339
|NE||Omaha Field Office|
Edward Zorinsky Federal Building
1616 Capitol Avenue, Suite 329
Omaha, NE 68102-4908
|Phone (402) 492-3100|
Fax (402) 492-3150
TTY (402) 492-3183
|NV||Las Vegas Field Office|
302 East Carson Street, 4th Floor
Las Vegas, NV 89101-5911
|Phone (702) 366-2100|
Fax (702) 388-6244
TTY (800) 877-8339
|NH||Manchester Field Office|
Norris Cotton Federal Building
275 Chestnut Street, 4th Floor
Manchester, NH 03101-2487
|Phone (603) 666-7510|
Fax (603) 666-7736
TTY (603) 666-7518
|NJ||Newark Field Office|
One Newark Center
1085 Raymond Boulevard, 13th Floor
Newark, NJ 07102-5260
|Phone (973) 776-7200|
Fax (973) 645-2323
TTY (973) 645-3298
|NM||Albuquerque Field Office|
500 Gold Avenue SW, 7th Floor, Suite 7301
P.O. Box 906
Albuquerque, NM 87103-0906
|Phone (505) 346-6463|
Fax (505) 346-6927
TTY (800) 877-8339
|NY||New York Regional Office|
Jacob K. Javits Federal Building
26 Federal Plaza, Suite 3541
New York, NY 10278-0068
|Phone (212) 264-8000|
Fax (212) 264-0246
TTY (212) 264-0927
|NY||Albany Field Office|
52 Corporate Circle
Albany, NY 12203-5121
|Phone (518) 862-2801|
Fax (518) 464-4300
No TTY number available
|NY||Buffalo Field Office|
465 Main Street, 2nd Floor
Buffalo, NY 14203-1780
|Phone (716) 551-5755|
Fax (716) 551-5752
TTY (716) 551-5787
|NC||Greensboro Field Office|
1500 Pinecroft Road, Suite 401
Greensboro, NC 27407-3838
|Phone (336) 547-4000|
Fax (336) 547-4138
TTY (336) 547-4054
|ND||Fargo Field Office|
657 Second Avenue North, Room 366
Fargo, ND 58108-2483
|Phone (701) 239-5136|
Fax (701) 239-5249
TTY (800) 877-8339
|OH||Cleveland Field Office|
US Bank Centre Building
1350 Euclid Avenue, Suite 500
Cleveland, OH 44115-1815
|Phone (216) 357-7900|
No email listed
Fax (216) 357-7920
TTY (800) 877-8339
|OH||Columbus Field Office|
Bricker Federal Building
200 North High Street, 7th Floor
Columbus, OH 43215-2463
|Phone (614) 469-5737|
No email listed
Fax (614) 469-2432
TTY (800) 877-8339
|OK||Oklahoma City Field Office|
301 NW 6th Street, Suite 200
Oklahoma City, OK 73102
|Phone (405) 609-8400|
Fax (405) 609-8982
TTY (800) 877-8339
|OK||Tulsa Field Office|
110 West 7th Street, Suite 1110
Tulsa, OK 74119
|Phone (918) 292-8900|
Fax (918) 292-8983
TTY (800) 877-8339
|OR||Portland Field Office|
Edith Green-Wendell Wyatt Federal Building
1220 SW Third Avenue, Suite 400
Portland, OR 97204-2825
|Phone (971) 222-2600|
Fax (971) 222-0357
TTY (800) 877-8339
|PA||Philadelphia Regional Office|
The Wanamaker Building
100 Penn Square East
|Phone (215) 656-0500|
Fax (215) 656-3445
TTY (800) 877-8339
|PA||Pittsburgh Field Office|
William Moorhead Federal Building
1000 Liberty Avenue, Suite 1000
Pittsburgh, PA 15222-4004
|Phone (412) 644-6428|
Fax (412) 644-6499
TTY (800) 877-8339
|Puerto Rico and U.S. Virgin Islands||San Juan Field Office|
Parque Las Americas I Building
235 Federico Costa Street, Suite 200
San Juan, PR 00918
|Phone (787) 766-5400|
Fax (787) 766-5995
TTY (787) 274-5898
|RI||Providence Field Office|
380 Westminster Street, Suite 547
Providence, RI 02903
|Phone (401) 277-8300|
Fax (401) 277-8398
TTY (800) 877-8339
|SC||Columbia Field Office|
Strom Thurmond Federal Building
1835 Assembly Street, 13th Floor
Columbia, SC 29201-2480
|Phone (803) 765-5592|
Fax (803) 765-5925
No TTY number available
|SD||Sioux Falls Field Office|
4301 West 57th Street, Suite 101
Sioux Falls, SD 57108
|Phone (605) 330-4223|
Fax (605) 330-4465
TTY (800) 877-8339
|TN||Nashville Field Office|
235 Cumberland Bend, Suite 200
Nashville, TN 37228-1803
|Phone (615) 515-8510|
Fax (615) 736-7848
TTY (866) 503-0264
|TN||Knoxville Field Office|
John J. Duncan Federal Building
710 Locust Street, SW 3rd Floor
Knoxville, TN 37902-2526
|Phone (865) 545-4370|
Fax (865) 545-4579
TTY (865) 545-4559
|TN||Memphis Field Office|
200 Jefferson Avenue, Suite 300
Memphis, TN 38103-2389
|Phone (615) 515-8510|
Fax (901) 544-3697
TTY (800) 855-1155
|TX||Fort Worth Regional Office|
307 W. 7th St., Suite 1000
Fort Worth, TX 76102
|Phone (817) 978-5600|
Fax (817) 978-5625
TTY (800) 877-8339
|TX||Houston Field Office|
1301 Fannin Street, Suite 2200
Houston, TX 77002
|Phone (713) 718-3199|
Fax (713) 718-3225
TTY (800) 877-8339
|TX||San Antonio Field Office |
Hipolito Garcia Federal Building
615 East Houston Street, Suite 347
San Antonio, TX 78205-2001
|Phone (210) 475-6800|
Fax (210) 472-6804
TTY (800) 877-8339
|UT||Salt Lake City Field Office|
125 South State Street, Suite 3001
Salt Lake City, UT 84138
|Phone (801) 524-6070|
Fax (801) 524-6816
TTY (800) 877-8339
|VT||Burlington Field Office|
95 Saint Paul Street, Suite 440
Burlington, VT 05401-4486
|Phone (802) 951-6290|
Fax (802) 951-6298
TTY (800) 877-8339
|VA||Richmond Field Office|
600 East Broad Street, 3rd Floor
Richmond, VA 23219-4920
|Phone (800) 842-2610|
Fax (804) 822-4984
TTY (800) 877-8339
|WA||Seattle Regional Office|
Seattle Federal Office Building
909 First Avenue, Suite 200
Seattle, WA 98104-1000
|Phone (206) 220-5101|
Fax (206) 220-5108
TTY (206) 220-5254
|WV||Charleston Field Office|
414 Summers Street, Suite 110
Charleston, WV 25301
|Phone (304) 347-7000|
Fax (304) 347-7050
TTY (800) 877-8339
|WI||Milwaukee Field Office|
310 West Wisconsin Avenue, Suite 950
Milwaukee, WI 53203-2289
|Phone (414) 297-3214|
No email listed
Fax (414) 935-6775
TTY (414) 297-1423
|WY||Casper Field Office|
150 East B Street, Room 1010
Casper, WY 82601-7005
|Phone (307) 261-6250|
Fax (307) 261-6245
TTY (800) 877-8339
FHA Loan Terms
Length of Mortgages
FHA loans are available in terms of either 15 years or 30 years.
With a 15-year mortgage, borrowers will have higher monthly payments but will pay less in interest over the life of the loan.
In comparison, 30-year terms have lower monthly payments, but borrowers will pay more in interest over the life of the loan. Most FHA loans are for 30-year terms.
Loan Amount Limits
Because FHA loans are designed for low- to moderate-income homebuyers, the FHA limits the loan amount. Generally speaking, the loan limit for single-family homes in low-cost areas is $420,680, for high-cost areas, it is $970,800, and for special exception areas, it is $1,456,200.
Special exception areas include Hawaii, Alaska, Guam and the U.S. Virgin Islands.
See the section called Maximum Loan Amount for more information.
Interest rates are established by FHA-approved lenders and may vary from lender to lender. The interest rate that the lender will charge you depends on:
- Market rates
- Credit score (higher scores result in lower interest)
- Fixed vs. adjustable rate mortgage (ARM initial rates are lower than fixed rates)
You can check current FHA interest rates from a variety of lenders here: https://www.bankrate.com/mortgages/fha-loan-rates/
Penalties and Fees
Unlike many subprime mortgages, FHA loans do not have prepayment penalties. A prepayment penalty is a financial penalty or charge that is triggered if a borrower significantly pays down or pays off the mortgage before the term is done. The exact terms of this penalty are outlined in a mortgage contract and may be based on the percentage of the remaining principal balance or a certain number of month’s worth of interest payments.
FHA loans are prohibited from incorporating any unnecessary fees that might give homeowners financial hardship.
Mortgage Insurance (MI) Requirement
When borrowers get an FHA mortgage, regardless of how much they put as a down payment, they are required to pay the mortgage insurance premium (MIP). This consists of a one time payment plus monthly payments.
The upfront payment is 1.75% of the loan amount. For example, on a $200,000 mortgage, this would amount to $3,500. The upfront mortgage insurance can be paid in full at closing or it can be rolled into the loan, increasing the monthly payments slightly and incurring interest over the life of the loan.
The monthly payments for MI are between 0.45% and 1.05% of the loan amount per year, depending on the loan amount, size of the down payment and the length of the loan (see table below). With the same $200,000 mortgage example cited above, monthly payments would be in this range:
- Annual payment amount at 0.45% = $900/year or $75/month
- Annual payment amount at 1.05% = $2,100/year or $175/month
MIP Cost and Term Table
|Base Loan Amount||Down Payment||% of Loan Amount Charged per Year||How Long Paid|
|Mortgage term of more than 15 years|
|Equal to or less than $625,500||10% or more||0.80%||11 years|
|Less than 5%||0.85%||Mortgage term|
|More than $625,500||10% or more||1.00%||11 years|
|Less than 5%||1.05%||Mortgage term|
|Mortgage term of 15 years or less|
|Equal to or less than $625,500||10% or more||0.45%||11 years|
|Less than 10%||0.70%||Mortgage term|
|More than $625,500||22% or more||0.45%||11 years|
|Less than 10%||0.95%||Mortgage term|
Most FHA borrowers have 30-year mortgages with a 3.5% down payment, so they will pay 0.85% for 30 years. On a $200,000 loan, that would be:
- Upfront payment: $3,500
- Annual payments $1,700 x 30 years = $51,000
- Total MIP = $54,500
Sample of an FHA Mortgage Contract
The below is a sample FHA mortgage contract that lenders may use when initiating the mortgage process. The document is provided by the FHA. It is effective as of September 2014 and is currently valid.
However, if the FHA changes or updates the form, you may find it on the Single Family Mortgages Model Documents webpage on the U.S. Department of Housing and Urban Development (HUD) website here: https://www.hud.gov/program_offices/housing/sfh/model_documents
After Recording Return To: ______________________ ______________________ ______________________ ______________________
Words used in multiple sections of this document are defined below and other words are defined in Sections 3, 11, 13, 18, 20 and 21. Certain rules regarding the usage of words used in this document are also provided in Section 16.
(A) “Security Instrument” means this document, which is dated ________________________, ________, together with all Riders to this document.
(B) “Borrower” is ____________________________________________________. Borrower is the mortgagor under this Security Instrument.
(C) “Lender” is ______________________________________________________. Lender is a _____________________________________________ organized and existing under the laws of ________________________________________. Lender’s address is _______________________ _______________________________________. Lender is the mortgagee under this Security Instrument.
(D) “Note” means the promissory note signed by Borrower and dated _______________________, _____. The Note states that Borrower owes Lender _______________________________________ Dollars (U.S. $__________________) plus interest. Borrower has promised to pay this debt in regular Periodic Payments and to pay the debt in full not later than __________________________.
(E) “Property” means the property that is described below under the heading “Transfer of Rights in the Property.”
(F) “Loan” means the debt evidenced by the Note, plus interest, late charges due under the Note, and all sums due under this Security Instrument, plus interest.
(G) “Riders” means all Riders to this Security Instrument that are executed by Borrower. The following Riders are to be executed by Borrower [check box as applicable]:
Adjustable Rate Rider
Planned Unit Development Rider
Other(s) [specify] __________
(H) “Applicable Law” means all controlling applicable federal, state and local statutes, regulations, ordinances and administrative rules and orders (that have the effect of law) as well as all applicable final, non-appealable judicial opinions.
(I) “Community Association Dues, Fees, and Assessments” means all dues, fees, assessments and other charges that are imposed on Borrower or the Property by a condominium association, homeowners association or similar organization.
(J) “Electronic Funds Transfer” means any transfer of funds, other than a transaction originated by check, draft, or similar paper instrument, which is initiated through an electronic terminal, telephonic instrument, computer, or magnetic tape so as to order, instruct, or authorize a financial institution to debit or credit an account. Such term includes, but is not limited to, point-of-sale transfers, automated teller machine transactions, transfers initiated by telephone, wire transfers, and automated clearinghouse transfers.
(K) “Escrow Items” means those items that are described in Section 3.
(L) “Miscellaneous Proceeds” means any compensation, settlement, award of damages, or proceeds paid by any third party (other than insurance proceeds paid under the coverages described in Section 5) for: (i) damage to, or destruction of, the Property; (ii) condemnation or other taking of all or any part of the Property; (iii) conveyance in lieu of condemnation; or (iv) misrepresentations of, or omissions as to, the value and/or condition of the Property.
(M) “Mortgage Insurance” means insurance protecting Lender against the nonpayment of, or default on, the Loan.
(N) “Periodic Payment” means the regularly scheduled amount due for (i) principal and interest under the Note, plus (ii) any amounts under Section 3 of this Security Instrument.
(O) “RESPA” means the Real Estate Settlement Procedures Act (12 U.S.C. §2601 et seq.) and its implementing regulation, Regulation X (24 C.F.R. Part 3500), as they might be amended from time to time, or any additional or successor legislation or regulation that governs the same subject matter. As used in this Security Instrument, “RESPA” refers to all requirements and restrictions that are imposed in regard to a “federally related mortgage loan” even if the Loan does not qualify as a “federally related mortgage loan” under RESPA.
(P) “Secretary” means the Secretary of the United States Department of Housing and Urban Development or his designee.
(Q) “Successor in Interest of Borrower” means any party that has taken title to the Property, whether or not that party has assumed Borrower’s obligations under the Note and/or this Security Instrument.
TRANSFER OF RIGHTS IN THE PROPERTY
This Security Instrument secures to Lender: (i) the repayment of the Loan, and all renewals, extensions and modifications of the Note; and (ii) the performance of Borrower’s covenants and agreements under this Security Instrument and the Note. For this purpose, Borrower does hereby mortgage, grant and convey to Lender, with power of sale, the following described property located in the ______________________________________:_________________________________ of [Type of Recording Jurisdiction] [Name of Recording Jurisdiction]
which currently has the address of _____________________________________________________
_____________________________, _____________(“Property Address”): [City and State] [Zip Code]
TOGETHER WITH all the improvements now or hereafter erected on the property, and all easements, appurtenances, and fixtures now or hereafter a part of the property. All replacements and additions shall also be covered by this Security Instrument. All of the foregoing is referred to in this Security Instrument as the “Property.”
BORROWER COVENANTS that Borrower is lawfully seised of the estate hereby conveyed and has the right to mortgage, grant and convey the Property and that the Property is unencumbered, except for encumbrances of record. Borrower warrants and will defend generally the title to the Property against all claims and demands, subject to any encumbrances of record.
THIS SECURITY INSTRUMENT combines uniform covenants for national use and non-uniform covenants with limited variations by jurisdiction to constitute a uniform security instrument covering real property.
UNIFORM COVENANTS. Borrower and Lender covenant and agree as follows:
1. Payment of Principal, Interest, Escrow Items, and Late Charges.
Borrower shall pay when due the principal of, and interest on, the debt evidenced by the Note and late charges due under the Note. Borrower shall also pay funds for Escrow Items pursuant to Section 3. Payments due under the Note and this Security Instrument shall be made in U.S. currency. However, if any check or other instrument received by Lender as payment under the Note or this Security Instrument is returned to Lender unpaid, Lender may require that any or all subsequent payments due under the Note and this Security Instrument be made in one or more of the following forms, as selected by Lender: (a) cash; (b) money order; (c) certified check, bank check, treasurer’s check or cashier’s check, provided any such check is drawn upon an institution whose deposits are insured by a federal agency, instrumentality, or entity; or (d) Electronic Funds Transfer.
Payments are deemed received by Lender when received at the location designated in the Note or at such other location as may be designated by Lender in accordance with the notice provisions in Section 15. Lender may return any payment or partial payment if the payment or partial payments are insufficient to bring the Loan current. Lender may accept any payment or partial payment insufficient to bring the Loan current, without waiver of any rights hereunder or prejudice to its rights to refuse such payment or partial payments in the future, but Lender is not obligated to apply such payments at the time such payments are accepted. If each Periodic Payment is applied as of its scheduled due date, then Lender need not pay interest on unapplied funds. Lender may hold such unapplied funds until Borrower makes payment to bring the Loan current. If Borrower does not do so within a reasonable period of time, Lender shall either apply such funds or return them to Borrower. If not applied earlier, such funds will be applied to the outstanding principal balance under the Note immediately prior to foreclosure. No offset or claim which Borrower might have now or in the future against Lender shall relieve Borrower from making payments due under the Note and this Security Instrument or performing the covenants and agreements secured by this Security Instrument.
2. Application of Payments or Proceeds.
Except as otherwise described in this Section 2, all payments accepted and applied by Lender shall be applied in the following order of priority:
First, to the Mortgage Insurance premiums to be paid by Lender to the Secretary or the the monthly charge by the Secretary instead of the monthly mortgage insurance premiums;
Second, to any taxes, special assessments, leasehold payments or ground rents, and fire, flood and other hazard insurance premiums, as required;
Third, to interest due under the Note;
Fourth, to amortization of the principal of the Note; and,
Fifth, to late charges due under the Note.
Any application of payments, insurance proceeds, or Miscellaneous Proceeds to principal due under the Note shall not extend or postpone the due date, or change the amount of the Periodic Payments.
3. Funds for Escrow Items.
Borrower shall pay to Lender on the day Periodic Payments are due under the Note, until the Note is paid in full, a sum (the “Funds”) to provide for payment of amounts due for: (a) taxes and assessments and other items which can attain priority over this Security Instrument as a lien or encumbrance on the Property; (b) leasehold payments or ground rents on the Property, if any; (c) premiums for any and all insurance required by Lender under Section 5; and (d) Mortgage Insurance premiums to be paid by Lender to the Secretary or the monthly charge by the Secretary instead of the monthly Mortgage Insurance premiums. These items are called “Escrow Items.”
At origination or at any time during the term of the Loan, Lender may require that Community Association Dues, Fees, and Assessments, if any, be escrowed by Borrower, and such dues, fees and assessments shall be an Escrow Item. Borrower shall promptly furnish to Lender all notices of amounts to be paid under this Section. Borrower shall pay Lender the Funds for Escrow Items unless Lender waives Borrower’s obligation to pay the Funds for any or all Escrow Items. Lender may waive Borrower’s obligation to pay to Lender Funds for any or all Escrow Items at any time. Any such waiver may only be in writing. In the event of such waiver, Borrower shall pay directly, when and where payable, the amounts due for any Escrow Items for which payment of Funds has been waived by Lender and, if Lender requires, shall furnish to Lender receipts evidencing such payment within such time period as Lender may require. Borrower’s obligation to make such payments and to provide receipts shall for all purposes be deemed to be a covenant and agreement contained in this Security Instrument, as the phrase “covenant and agreement” is used in Section 9.
If Borrower is obligated to pay Escrow Items directly, pursuant to a waiver, and Borrower fails to pay the amount due for an Escrow Item, Lender may exercise its rights under Section 9 and pay such amount and Borrower shall then be obligated under Section 9 to repay to Lender any such amount. Lender may revoke the waiver as to any or all Escrow Items at any time by a notice given in accordance with Section 15 and, upon such revocation, Borrower shall pay to Lender all Funds, and in such amounts, that are then required under this Section 3.
Lender may, at any time, collect and hold Funds in an amount (a) sufficient to permit Lender to apply the Funds at the time specified under RESPA, and (b) not to exceed the maximum amount a lender can require under RESPA. Lender shall estimate the amount of Funds due on the basis of current data and reasonable estimates of expenditures of future Escrow Items or otherwise in accordance with Applicable Law.
The Funds shall be held in an institution whose deposits are insured by a federal agency, instrumentality, or entity (including Lender, if Lender is an institution whose deposits are so insured) or in any Federal Home Loan Bank. Lender shall apply the Funds to pay the Escrow Items no later than the time specified under RESPA. Lender shall not charge Borrower for holding and applying the Funds, annually analyzing the escrow account, or verifying the Escrow Items, unless Lender pays Borrower interest on the Funds and Applicable Law permits Lender to make such a charge. Unless an agreement is made in writing or Applicable Law requires interest to be paid on the Funds, Lender shall not be required to pay Borrower any interest or earnings on the Funds. Borrower and Lender can agree in writing, however, that interest shall be paid on the Funds. Lender shall give to Borrower, without charge, an annual accounting of the Funds as required by RESPA.
If there is a surplus of Funds held in escrow, as defined under RESPA, Lender shall account to Borrower for the excess funds in accordance with RESPA. If there is a shortage of Funds held in escrow, as defined under RESPA, Lender shall notify Borrower as required by RESPA, and Borrower shall pay to Lender the amount necessary to make up the shortage in accordance with RESPA, but in no more than 12 monthly payments. If there is a deficiency of Funds held in escrow, as defined under RESPA, Lender shall notify Borrower as required by RESPA, and Borrower shall pay to Lender the amount necessary to make up the deficiency in accordance with RESPA, but in no more than 12 monthly payments.
Upon payment in full of all sums secured by this Security Instrument, Lender shall promptly refund to Borrower any Funds held by Lender.
4. Charges; Liens.
Borrower shall pay all taxes, assessments, charges, fines, and impositions attributable to the Property which can attain priority over this Security Instrument, leasehold payments or ground rents on the Property, if any, and Community Association Dues, Fees, and Assessments, if any. To the extent that these items are Escrow Items, Borrower shall pay them in the manner provided in Section 3.
Borrower shall promptly discharge any lien which has priority over this Security Instrument unless Borrower: (a) agrees in writing to the payment of the obligation secured by the lien in a manner acceptable to Lender, but only so long as Borrower is performing such agreement; (b) contests the lien in good faith by, or defends against enforcement of the lien in, legal proceedings which in Lender’s opinion operate to prevent the enforcement of the lien while those proceedings are pending, but only until such proceedings are concluded; or (c) secures from the holder of the lien an agreement satisfactory to Lender subordinating the lien to this Security Instrument. If Lender determines that any part of the Property is subject to a lien which can attain priority over this Security Instrument, Lender may give Borrower a notice identifying the lien. Within 10 days of the date on which that notice is given, Borrower shall satisfy the lien or take one or more of the actions set forth above in this Section 4.
5. Property Insurance.
Borrower shall keep the improvements now existing or hereafter erected on the Property insured against loss by fire, hazards included within the term “extended coverage,” and any other hazards including, but not limited to, earthquakes and floods, for which Lender requires insurance. This insurance shall be maintained in the amounts (including deductible levels) and for the periods that Lender requires. What Lender requires pursuant to the preceding sentences can change during the term of the Loan. The insurance carrier providing the insurance shall be chosen by Borrower subject to Lender’s right to disapprove Borrower’s choice, which right shall not be exercised unreasonably. Lender may require Borrower to pay, in connection with this Loan, either: (a) a one-time charge for flood zone determination, certification and tracking services; or (b) a one-time charge for flood zone determination and certification services and subsequent charges each time remappings or similar changes occur which reasonably might affect such determination or certification. Borrower shall also be responsible for the payment of any fees imposed by the Federal Emergency Management Agency in connection with the review of any flood zone determination resulting from an objection by Borrower.
If Borrower fails to maintain any of the coverages described above, Lender may obtain insurance coverage, at Lender’s option and Borrower’s expense. Lender is under no obligation to purchase any particular type or amount of coverage. Therefore, such coverage shall cover Lender, but might or might not protect Borrower, Borrower’s equity in the Property, or the contents of the Property, against any risk, hazard or liability and might provide greater or lesser coverage than was previously in effect. Borrower acknowledges that the cost of the insurance coverage so obtained might significantly exceed the cost of insurance that Borrower could have obtained. Any amounts disbursed by Lender under this Section 5 shall become additional debt of Borrower secured by this Security Instrument. These amounts shall bear interest at the Note rate from the date of disbursement and shall be payable, with such interest, upon notice from Lender to Borrower requesting payment.
All insurance policies required by Lender and renewals of such policies shall be subject to Lender’s right to disapprove such policies, shall include a standard mortgage clause, and shall name Lender as mortgagee and/or as additional loss payee. Lender shall have the right to hold the policies and renewal certificates. If Lender requires, Borrower shall promptly give to Lender all receipts of paid premiums and renewal notices. If Borrower obtains any form of insurance coverage, not otherwise required by Lender, for damage to, or destruction of, the Property, such policy shall include a standard mortgage clause and shall name Lender as mortgagee and/or as an additional loss payee.
In the event of loss, Borrower shall give prompt notice to the insurance carrier and Lender. Lender may make proof of loss if not made promptly by Borrower. Unless Lender and Borrower otherwise agree in writing, any insurance proceeds, whether or not the underlying insurance was required by Lender, shall be applied to restoration or repair of the Property, if the restoration or repair is economically feasible and Lender’s security is not lessened. During such repair and restoration period, Lender shall have the right to hold such insurance proceeds until Lender has had an opportunity to inspect such Property to ensure the work has been completed to Lender’s satisfaction, provided that such inspection shall be undertaken promptly. Lender may disburse proceeds for the repairs and restoration in a single payment or in a series of progress payments as the work is completed. Unless an agreement is made in writing or Applicable Law requires interest to be paid on such insurance proceeds, Lender shall not be required to pay Borrower any interest or earnings on such proceeds. Fees for public adjusters, or other third parties, retained by Borrower shall not be paid out of the insurance proceeds and shall be the sole obligation of Borrower. If the restoration or repair is not economically feasible or Lender’s security would be lessened, the insurance proceeds shall be applied to the sums secured by this Security Instrument, whether or not then due, with the excess, if any, paid to Borrower. Such insurance proceeds shall be applied in the order provided for in Section 2.
If Borrower abandons the Property, Lender may file, negotiate and settle any available insurance claim and related matters. If Borrower does not respond within 30 days to a notice from Lender that the insurance carrier has offered to settle a claim, then Lender may negotiate and settle the claim. The 30-day period will begin when the notice is given. In either event, or if Lender acquires the Property under Section 22 or otherwise, Borrower hereby assigns to Lender (a) Borrower’s rights to any insurance proceeds in an amount not to exceed the amounts unpaid under the Note or this Security Instrument, and (b) any other of Borrower’s rights (other than the right to any refund of unearned premiums paid by Borrower) under all insurance policies covering the Property, insofar as such rights are applicable to the coverage of the Property. Lender may use the insurance proceeds either to repair or restore the Property or to pay amounts unpaid under the Note or this Security Instrument, whether or not then due.
Borrower shall occupy, establish, and use the Property as Borrower’s principal residence within 60 days after the execution of this Security Instrument and shall continue to occupy the Property as Borrower’s principal residence for at least one year after the date of occupancy, unless Lender determines that this requirement shall cause undue hardship for the Borrower or unless extenuating circumstances exist which are beyond Borrower’s control.
7. Preservation, Maintenance and Protection of the Property; Inspections.
Borrower shall not destroy, damage or impair the Property, allow the Property to deteriorate or commit waste on the Property. Borrower shall maintain the Property in order to prevent the Property from deteriorating or decreasing in value due to its condition. Unless it is determined pursuant to Section 5 that repair or restoration is not economically feasible, Borrower shall promptly repair the Property if damaged to avoid further deterioration or damage. If insurance or condemnation proceeds are paid in connection with damage to the Property, Borrower shall be responsible for repairing or restoring the Property only if Lender has released proceeds for such purposes. Lender may disburse proceeds for the repairs and restoration in a single payment or in a series of progress payments as the work is completed. If the insurance or condemnation proceeds are not sufficient to repair or restore the Property, Borrower is not relieved of Borrower’s obligation for the completion of such repair or restoration.
If condemnation proceeds are paid in connection with the taking of the property, Lender shall apply such proceeds to the reduction of the indebtedness under the Note and this Security Instrument, first to any delinquent amounts, and then to payment of principal. Any application of the proceeds to the principal shall not extend or postpone the due date of the monthly payments or change the amount of such payments.
Lender or its agent may make reasonable entries upon and inspections of the Property. If it has reasonable cause, Lender may inspect the interior of the improvements on the Property. Lender shall give Borrower notice at the time of or prior to such an interior inspection specifying such reasonable cause.
8. Borrower’s Loan Application.
Borrower shall be in default if, during the Loan application process, Borrower or any persons or entities acting at the direction of Borrower or with Borrower’s knowledge or consent gave materially false, misleading, or inaccurate information or statements to Lender (or failed to provide Lender with material information) in connection with the Loan. Material representations include, but are not limited to, representations concerning Borrower’s occupancy of the Property as Borrower’s principal residence.
9. Protection of Lender’s Interest in the Property and Rights Under this Security Instrument.
If (a) Borrower fails to perform the covenants and agreements contained in this Security Instrument, (b) there is a legal proceeding that might significantly affect Lender’s interest in the Property and/or rights under this Security Instrument (such as a proceeding in bankruptcy, probate, for condemnation or forfeiture, for enforcement of a lien which may attain priority over this Security Instrument or to enforce laws or regulations), or (c) Borrower has abandoned the Property, then Lender may do and pay for whatever is reasonable or appropriate to protect Lender’s interest in the Property and rights under this Security Instrument, including protecting and/or assessing the value of the Property, and securing and/or repairing the Property. Lender’s actions can include, but are not limited to: (a) paying any sums secured by a lien which has priority over this Security Instrument; (b) appearing in court; and (c) paying reasonable attorneys’ fees to protect its interest in the Property and/or rights under this Security Instrument, including its secured position in a bankruptcy proceeding. Securing the Property includes, but is not limited to, entering the Property to make repairs, change locks, replace or board up doors and windows, drain water from pipes, eliminate building or other code violations or dangerous conditions, and have utilities turned on or off. Although Lender may take action under this Section 9, Lender does not have to do so and is not under any duty or obligation to do so. It is agreed that Lender incurs no liability for not taking any or all actions authorized under this Section 9.
Any amounts disbursed by Lender under this Section 9 shall become additional debt of Borrower secured by this Security Instrument. These amounts shall bear interest at the Note rate from the date of disbursement and shall be payable, with such interest, upon notice from Lender to Borrower requesting payment.
If this Security Instrument is on a leasehold, Borrower shall comply with all the provisions of the lease. If Borrower acquires fee title to the Property, the leasehold and the fee title shall not merge unless Lender agrees to the merger in writing.
10. Assignment of Miscellaneous Proceeds; Forfeiture.
All Miscellaneous Proceeds are hereby assigned to and shall be paid to Lender.
If the Property is damaged, such Miscellaneous Proceeds shall be applied to restoration or repair of the Property, if the restoration or repair is economically feasible and Lender’s security is not lessened. During such repair and restoration period, Lender shall have the right to hold such Miscellaneous Proceeds until Lender has had an opportunity to inspect such Property to ensure the work has been completed to Lender’s satisfaction, provided that such inspection shall be undertaken promptly. Lender may pay for the repairs and restoration in a single disbursement or in a series of progress payments as the work is completed. Unless an agreement is made in writing or Applicable Law requires interest to be paid on such Miscellaneous Proceeds, Lender shall not be required to pay Borrower any interest or earnings on such Miscellaneous Proceeds. If the restoration or repair is not economically feasible or Lender’s security would be lessened, the Miscellaneous Proceeds shall be applied to the sums secured by this Security Instrument, whether or not then due, with the excess, if any, paid to Borrower. Such Miscellaneous Proceeds shall be applied in the order provided for in Section 2.
In the event of a total taking, destruction, or loss in value of the Property, the Miscellaneous Proceeds shall be applied to the sums secured by this Security Instrument, whether or not then due, with the excess, if any, paid to Borrower.
In the event of a partial taking, destruction, or loss in value of the Property in which the fair market value of the Property immediately before the partial taking, destruction, or loss in value is equal to or greater than the amount of the sums secured by this Security Instrument immediately before the partial taking, destruction, or loss in value, unless Borrower and Lender otherwise agree in writing, the sums secured by this Security Instrument shall be reduced by the amount of the Miscellaneous Proceeds multiplied by the following fraction: (a) the total amount of the sums secured immediately before the partial taking, destruction, or loss in value divided by (b) the fair market value of the Property immediately before the partial taking, destruction, or loss in value. Any balance shall be paid to Borrower.
In the event of a partial taking, destruction, or loss in value of the Property in which the fair market value of the Property immediately before the partial taking, destruction, or loss in value is less than the amount of the sums secured immediately before the partial taking, destruction, or loss in value, unless Borrower and Lender otherwise agree in writing, the Miscellaneous Proceeds shall be applied to the sums secured by this Security Instrument whether or not the sums are then due.
If the Property is abandoned by Borrower, or if, after notice by Lender to Borrower that the Opposing Party (as defined in the next sentence) offers to make an award to settle a claim for damages, Borrower fails to respond to Lender within 30 days after the date the notice is given, Lender is authorized to collect and apply the Miscellaneous Proceeds either to restoration or repair of the Property or to the sums secured by this Security Instrument, whether or not then due. “Opposing Party” means the third party that owes Borrower Miscellaneous Proceeds or the party against whom Borrower has a right of action in regard to Miscellaneous Proceeds.
Borrower shall be in default if any action or proceeding, whether civil or criminal, is begun that, in Lender’s judgment, could result in forfeiture of the Property or other material impairment of Lender’s interest in the Property or rights under this Security Instrument. Borrower can cure such a default and, if acceleration has occurred, reinstate as provided in Section 19, by causing the action or proceeding to be dismissed with a ruling that, in Lender’s judgment, precludes forfeiture of the Property or other material impairment of Lender’s interest in the Property or rights under this Security Instrument. The proceeds of any award or claim for damages that are attributable to the impairment of Lender’s interest in the Property are hereby assigned and shall be paid to Lender.
All Miscellaneous Proceeds that are not applied to restoration or repair of the Property shall be applied in the order provided for in Section 2.
11. Borrower Not Released; Forbearance By Lender Not a Waiver.
Extension of the time for payment or modification of amortization of the sums secured by this Security Instrument granted by Lender to Borrower or any Successor in Interest of Borrower shall not operate to release the liability of Borrower or any Successors in Interest of Borrower. Lender shall not be required to commence proceedings against any Successor in Interest of Borrower or to refuse to extend time for payment or otherwise modify amortization of the sums secured by this Security Instrument by reason of any demand made by the original Borrower or any Successors in Interest of Borrower. Any forbearance by Lender in exercising any right or remedy including, without limitation, Lender’s acceptance of payments from third persons, entities or Successors in Interest of Borrower or in amounts less than the amount then due, shall not be a waiver of or preclude the exercise of any right or remedy.
12. Joint and Several Liability; Co-signers; Successors and Assigns Bound.
Borrower covenants and agrees that Borrower’s obligations and liability shall be joint and several. However, any Borrower who co-signs this Security Instrument but does not execute the Note (a “co-signer”): (a) is co-signing this Security Instrument only to mortgage, grant and convey the co-signer’s interest in the Property under the terms of this Security Instrument; (b) is not personally obligated to pay the sums secured by this Security Instrument; and (c) agrees that Lender and any other Borrower can agree to extend, modify, forbear or make any accommodations with regard to the terms of this Security Instrument or the Note without the co- signer’s consent.
Subject to the provisions of Section 17, any Successor in Interest of Borrower who assumes Borrower’s obligations under this Security Instrument in writing, and is approved by Lender, shall obtain all of Borrower’s rights and benefits under this Security Instrument. Borrower shall not be released from Borrower’s obligations and liability under this Security Instrument unless Lender agrees to such release in writing. The covenants and agreements of this Security Instrument shall bind (except as provided in Section 19) and benefit the successors and assigns of Lender.
13. Loan Charges.
Lender may charge Borrower fees for services performed in connection with Borrower’s default, for the purpose of protecting Lender’s interest in the Property and rights under this Security Instrument, including, but not limited to, attorneys’ fees, property inspection and valuation fees. Lender may collect fees and charges authorized by the Secretary. Lender may not charge fees that are expressly prohibited by this Security Instrument, or by Applicable Law.
If the Loan is subject to a law which sets maximum loan charges, and that law is finally interpreted so that the interest or other loan charges collected or to be collected in connection with the Loan exceed the permitted limits, then: (a) any such loan charge shall be reduced by the amount necessary to reduce the charge to the permitted limit; and (b) any sums already collected from Borrower which exceeded permitted limits will be refunded to Borrower. Lender may choose to make this refund by reducing the principal owed under the Note or by making a direct payment to Borrower. If a refund reduces principal, the reduction will be treated as a partial prepayment with no changes in the due date or in the monthly payment amount unless the Note holder agrees in writing to those changes. Borrower’s acceptance of any such refund made by direct payment to Borrower will constitute a waiver of any right of action Borrower might have arising out of such overcharge.
All notices given by Borrower or Lender in connection with this Security Instrument must be in writing. Any notice to Borrower in connection with this Security Instrument shall be deemed to have been given to Borrower when mailed by first class mail or when actually delivered to Borrower’s notice address if sent by other means. Notice to any one Borrower shall constitute notice to all Borrowers unless Applicable Law expressly requires otherwise. The notice address shall be the Property Address unless Borrower has designated a substitute notice address by notice to Lender. Borrower shall promptly notify Lender of Borrower’s change of address. If Lender specifies a procedure for reporting Borrower’s change of address, then Borrower shall only report a change of address through that specified procedure. There may be only one designated notice address under this Security Instrument at any one time. Any notice to Lender shall be given by delivering it or by mailing it by first class mail to Lender’s address stated herein unless Lender has designated another address by notice to Borrower. Any notice in connection with this Security Instrument shall not be deemed to have been given to Lender until actually received by Lender. If any notice required by this Security Instrument is also required under Applicable Law, the Applicable Law requirement will satisfy the corresponding requirement under this Security Instrument.
15. Governing Law; Severability; Rules of Construction.
This Security Instrument shall be governed by federal law and the law of the jurisdiction in which the Property is located.
All rights and obligations contained in this Security Instrument are subject to any requirements and limitations of Applicable Law. Applicable Law might explicitly or implicitly allow the parties to agree by contract or it might be silent, but such silence shall not be construed as a prohibition against agreement by contract. In the event that any provision or clause of this Security Instrument or the Note conflicts with Applicable Law, such conflict shall not affect other provisions of this Security Instrument or the Note which can be given effect without the conflicting provision.
As used in this Security Instrument: (a) words of the masculine gender shall mean and include corresponding neuter words or words of the feminine gender; (b) words in the singular shall mean and include the plural and vice versa; and (c) the word “may” gives sole discretion without any obligation to take any action.
16. Borrower’s Copy.
Borrower shall be given one copy of the Note and of this Security Instrument.
17. Transfer of the Property or a Beneficial Interest in Borrower.
As used in this Section 17, “Interest in the Property” means any legal or beneficial interest in the Property, including, but not limited to, those beneficial interests transferred in a bond for deed, contract for deed, installment sales contract or escrow agreement, the intent of which is the transfer of title by Borrower at a future date to a purchaser.
If all or any part of the Property or any Interest in the Property is sold or transferred (or if Borrower is not a natural person and a beneficial interest in Borrower is sold or transferred) without Lender’s prior written consent, Lender may require immediate payment in full of all sums secured by this Security Instrument. However, this option shall not be exercised by Lender if such exercise is prohibited by Applicable Law.
If Lender exercises this option, Lender shall give Borrower notice of acceleration. The notice shall provide a period of not less than 30 days from the date the notice is given in accordance with Section 15 within which Borrower must pay all sums secured by this Security Instrument. If Borrower fails to pay these sums prior to the expiration of this period, Lender may invoke any remedies permitted by this Security Instrument without further notice or demand on Borrower.
18. Borrower’s Right to Reinstate After Acceleration.
If Borrower meets certain conditions, Borrower shall have the right to reinstatement of a mortgage. Those conditions are that Borrower: (a) pays Lender all sums which then would be due under this Security Instrument and the Note as if no acceleration had occurred; (b) cures any default of any other covenants or agreements; (c) pays all expenses incurred in enforcing this Security Instrument, including, but not limited to, reasonable attorneys’ fees, property inspection and valuation fees, and other fees incurred for the purpose of protecting Lender’s interest in the Property and rights under this Security Instrument; and (d) takes such action as Lender may reasonably require to assure that Lender’s interest in the Property and rights under this Security Instrument, and Borrower’s obligation to pay the sums secured by this Security Instrument, shall continue unchanged. However, Lender is not required to reinstate if: (i) Lender has accepted reinstatement after the commencement of foreclosure proceedings within two years immediately preceding the commencement of a current foreclosure proceedings; (ii) reinstatement will preclude foreclosure on different grounds in the future, or (iii) reinstatement will adversely affect the priority of the lien created by this Security Instrument. Lender may require that Borrower pay such reinstatement sums and expenses in one or more of the following forms, as selected by Lender: (a) cash; (b) money order; (c) certified check, bank check, treasurer’s check or cashier’s check, provided any such check is drawn upon an institution whose deposits are insured by a federal agency, instrumentality or entity; or (d) Electronic Funds Transfer. Upon reinstatement by Borrower, this Security Instrument and obligations secured hereby shall remain fully effective as if no acceleration had occurred. However, this right to reinstate shall not apply in the case of acceleration under Section 17.
19. Sale of Note; Change of Loan Servicer; Notice of Grievance.
The Note or a partial interest in the Note (together with this Security Instrument) can be sold one or more times without prior notice to Borrower. A sale might result in a change in the entity (known as the “Loan Servicer”) that collects Periodic Payments due under the Note and this Security Instrument and performs other mortgage loan servicing obligations under the Note, this Security Instrument, and Applicable Law. There also might be one or more changes of the Loan Servicer unrelated to a sale of the Note. If there is a change of the Loan Servicer, Borrower will be given written notice of the change which will state the name and address of the new Loan Servicer, the address to which payments should be made and any other information RESPA requires in connection with a notice of transfer of servicing. If the Note is sold and thereafter the Loan is serviced by a Loan Servicer other than the purchaser of the Note, the mortgage loan servicing obligations to Borrower will remain with the Loan Servicer or be transferred to a successor Loan Servicer and are not assumed by the Note purchaser unless otherwise provided by the Note purchaser.
20. Borrower Not Third-Party Beneficiary to Contract of Insurance.
Mortgage Insurance reimburses Lender (or any entity that purchases the Note) for certain losses it may incur if Borrower does not repay the Loan as agreed. Borrower acknowledges and agrees that the Borrower is not a third party beneficiary to the contract of insurance between the Secretary and Lender, nor is Borrower entitled to enforce any agreement between Lender and the Secretary, unless explicitly authorized to do so by Applicable Law.
21. Hazardous Substances.
As used in this Section 20: (a) “Hazardous Substances” are those substances defined as toxic or hazardous substances, pollutants, or wastes by Environmental Law and the following substances: gasoline, kerosene, other flammable or toxic petroleum products, toxic pesticides and herbicides, volatile solvents, materials containing asbestos or formaldehyde, and radioactive materials; (b) “Environmental Law” means federal laws and laws of the jurisdiction where the Property is located that relate to health, safety or environmental protection; (c) “Environmental Cleanup” includes any response action, remedial action, or removal action, as defined in Environmental Law; and (d) an “Environmental Condition” means a condition that can cause, contribute to, or otherwise trigger an Environmental Cleanup. Borrower shall not cause or permit the presence, use, disposal, storage, or release of any Hazardous Substances, or threaten to release any Hazardous Substances, on or in the Property. Borrower shall not do, nor allow anyone else to do, anything affecting the Property (a) that is in violation of any Environmental Law, (b)which creates an Environmental Condition, or (c) which, due to the presence, use, or release of a Hazardous Substance, creates a condition that adversely affects the value of the Property. The preceding two sentences shall not apply to the presence, use, or storage on the Property of small quantities of Hazardous Substances that are generally recognized to be appropriate to normal residential uses and to maintenance of the Property (including, but not limited to, hazardous substances in consumer products).
Borrower shall promptly give Lender written notice of (a) any investigation, claim, demand, lawsuit or other action by any governmental or regulatory agency or private party involving the Property and any Hazardous Substance or Environmental Law of which Borrower has actual knowledge, (b) any Environmental Condition, including but not limited to, any spilling, leaking, discharge, release or threat of release of any Hazardous Substance, and (c) any condition caused by the presence, use or release of a Hazardous Substance which adversely affects the value of the Property. If Borrower learns, or is notified by any governmental or regulatory authority, or any private party, that any removal or other remediation of any Hazardous Substance affecting the Property is necessary, Borrower shall promptly take all necessary remedial actions in accordance with Environmental Law. Nothing herein shall create any obligation on Lender for an Environmental Cleanup.
NON-UNIFORM COVENANTS. Borrower and Lender further covenant and agree as follows:
22. Acceleration; Remedies.
Lender shall give notice to Borrower prior to acceleration following Borrower’s breach of any covenant or agreement in this Security Instrument (but not prior to acceleration under Section 17 unless Applicable Law provides otherwise). The notice shall specify: (a) the default; (b) the action required to cure the default; (c) a date, not less than 30 days from the date the notice is given to Borrower, by which the default must be cured; and (d) that failure to cure the default on or before the date specified in the notice may result in acceleration of the sums secured by this Security Instrument and sale of the Property. The notice shall further inform Borrower of the right to reinstate after acceleration and the right to bring a court action to assert the non- existence of a default or any other defense of Borrower to acceleration and sale. If the default is not cured on or before the date specified in the notice, Lender at its option may require immediate payment in full of all sums secured by this Security Instrument without further demand and may invoke the power of sale and any other remedies permitted by Applicable Law. Lender shall be entitled to collect all expenses incurred in pursuing the remedies provided in this Section 21, including, but not limited to, reasonable attorneys’ fees and costs of title evidence.
If Lender invokes the power of sale, Lender shall give Borrower notice of sale in the manner provided in Section 14. Lender shall publish a notice of sale and shall sell the Property at the time and place and under the terms specified in the notice of sale. Lender or its designee may purchase the Property at any sale. The proceeds of the sale shall be applied in the following order: (a) to all expenses of the sale, including, but not limited to, reasonable attorneys’ fees; (b) to all sums secured by this Security Instrument; and (c) any excess to the person or persons legally entitled to it.
Upon payment of all sums secured by this Security Instrument, Lender shall release this Security Instrument. Borrower shall pay any recordation costs. Lender may charge Borrower a fee for releasing this Security Instrument, but only if the fee is paid to a third party for services rendered and the charging of the fee is permitted under Applicable Law.
Borrower relinquishes all right of dower and curtesy in the Property.
NON-UNIFORM COVENANTS. Borrower and Lender further covenant and agree as follows:
25. Acceleration; Remedies.
Lender shall give notice to Borrower prior to acceleration following Borrower’s breach of any covenant or agreement in this Security Instrument (but not prior to acceleration under Section 18 unless Applicable Law provides otherwise). The notice shall specify: (a) the default; (b) the action required to cure the default; (c) a date, not less than 30 days from the date the notice is given to Borrower, by which the default must be cured; and (d) that failure to cure the default on or before the date specified in the notice may result in acceleration of the sums secured by this Security Instrument, foreclosure by judicial proceeding and sale of the Property. The notice shall further inform Borrower of the right to reinstate after acceleration and the right to assert in the foreclosure proceeding the non-existence of a default or any other defense of Borrower to acceleration and foreclosure. If the default is not cured on or before the date specified in the notice, Lender at its option may require immediate payment in full of all sums secured by this Security Instrument without further demand and may foreclose this Security Instrument by judicial proceeding. Lender shall be entitled to collect all expenses incurred in pursuing the remedies provided in this Section 22, including, but not limited to, reasonable attorneys’ fees and costs of title evidence.
Upon payment of all sums secured by this Security Instrument, Lender shall release this Security Instrument. Borrower shall pay any recordation costs. Lender may charge Borrower a fee for releasing this Security Instrument, but only if the fee is paid to a third party for services rendered and the charging of the fee is permitted under Applicable Law.
27. Attorneys’ Fees.
As used in this Security Instrument and the Note, attorneys’ fees shall include those awarded by an appellate court and any attorneys’ fees incurred in a bankruptcy proceeding.
28. Jury Trial Waiver.
The Borrower hereby waives any right to a trial by jury in any action, proceeding, claim, or counterclaim, whether in contract or tort, at law or in equity, arising out of or in any way related to this Security Instrument or the Note.
BY SIGNING BELOW, Borrower accepts and agrees to the terms and covenants contained in this Security Instrument and in any Rider executed by Borrower and recorded with it.
___________________________________(Seal) – Borrower
___________________________________(Seal) – Borrower
__________ [Space Below This Line For Acknowledgment]__________________
Reasons to Consider an FHA Loan
An FHA loan is an affordable option when borrowers have little money saved for a down payment, have poor credit or a somewhat high amount of debt. As a reminder, the FHA does not provide mortgage loans itself; it only insures loans provided by approved lenders.
Low Down Payment
One of the biggest hurdles to homeownership is not having enough money saved for a down payment. A down payment is a percentage of the purchase price that borrowers are expected to pay when they buy a home.
For example, a conventional mortgage on a home selling for $175,000 may require a down payment of at least 5%, or $8,750 in cash that is payable at closing. FHA loans only require a minimum of 3.5% down payment. In this example, that would be $6,125.
Flexible Down Payment Sources
Some lenders have a minimum contribution requirement. This means that a portion of the funds used for the down payment must come from money borrowers have saved in a bank account over time. With an FHA loan, money for the down payment can come from other sources. See the section titled Down Payment for more information.
Lower Credit Score Requirement
Credit scores are how lenders evaluate risk when they are deciding whether to loan a prospective homebuyer money and if so, at what interest rate. The credit score is a single number between 300 and 850 that summarizes the borrower’s creditworthiness based on credit payment history, length of credit history, amount owed, credit mix and amount of new credit.
Credit scores are calculated by all three credit bureaus:
A higher score means that the bureau considers the borrower to be more likely to repay a debt.
Did You Know?
Most Americans have credit scores between 600 and 750. A credit score of 750 or more means that the borrower has excellent credit.
The low credit score requirements are what set FHA loans apart from most other kinds of mortgages. With a conventional loan, the minimum acceptable credit score is 620, but with an FHA loan, the borrower’s credit score can be as low as 500.
Higher Allowable Debt-to-Income Ratio
The debt-to-income ratio (DTI) is another measure that lenders use to evaluate risk. It is the amount of money the borrower owes each month, divided by his or her monthly income. For a conventional mortgage, the DTI can be as high as 43%, but more often needs to be 36% or less. With an FHA mortgage, the DTI can go up to 50%.
Sometimes a homeowner with an existing mortgage wants different mortgage terms, such as a lower interest rate, a longer or shorter term, or to switch from an adjustable rate mortgage (ARM) to a fixed rate mortgage. Other times, a homeowner may want to take some cash out of the equity, or value, of the home to do home renovations, energy upgrades or for some other purpose. To accomplish this goal, the homeowner can replace the existing mortgage with a new mortgage. This is called refinancing.
If a homeowner has an FHA loan and wants to refinance, the FHA allows this (see Streamline Refinance Loan).The FHA has a streamlined process that requires less documentation, may waive the requirement of a home appraisal and takes less time to complete compared to a typical refinance transaction.
With a conventional refinance, the entire application process that the homeowner went through for the original mortgage is repeated. See the section titled How to Apply for an FHA Loan for information on the application process.
To qualify for an FHA refinance, there can be specific requirements that must be met. These requirements may include:
- Meeting the lender’s minimum requirements in terms of credit score and DTI
- Having an existing FHA loan
- Being current in existing mortgage payments
- Getting some benefit from the refinance transaction
- Saving money over time
- Reducing uncertainty
- Receiving cash out
FHA loans are not allowed to have a due-on-sale clause. A due-on-sale clause in the mortgage contract requires the homeowner to pay the entire balance due on the mortgage when the property is sold.
When selling a home with an FHA loan, the buyer can agree to assume, or take over, the existing mortgage with all of its terms.
If a home’s purchase price is $250,000 and the balance due on the mortgage at time of sale is $150,000, the buyer would have to either make a $100,000 down payment or get an additional mortgage to cover that amount.
Then, the buyer would continue making monthly mortgage payments to the seller’s lender in the same amount as the seller had been paying.
If the buyer had a second mortgage to cover overages, he or she would also make a separate mortgage payment on that loan.
From a buyer’s perspective, this might be a good deal if interest rates at the time of sale are significantly higher than the interest rate on the seller’s mortgage. If this is the case, having an assumable mortgage is an advantage to the seller because it would make it easier to sell the home.
More Forgiving of Major Credit Problems
When borrowers have had a major credit problem, such as a foreclosure or bankruptcy in the past, lenders will require that some time must have elapsed before they will qualify for a mortgage. With an FHA loan, this waiting period is shorter than with conventional loans.
FHA vs. Conventional Loan Waiting Periods After Adverse Credit Events
|FHA||Conventional (Fannie Mae and Freddie Mac)|
|Bankruptcy Chapter 7||2 years after discharge date||4 years (or 5 years if multiple bankruptcies on record in the last 7 years)|
|Bankruptcy Chapter 13||1 year after start of repayment plan, with court approval||2 years from discharge date or 4 years from last dismissal date (or 5 years if multiple bankruptcies on record in the last 7 years)|
|Foreclosure||3 years||7 years|
|Short sale||3 years, no waiting period if borrower was current on payments for 12 months before short sale||4 years with 5% down payment|
|Deed-in-lieu foreclosure||3 years after date of recorded deed||4 years with 5% down payment|
Disadvantages of FHA Loans
If the consumer qualifies for a conventional mortgage, it may be a better choice over an FHA loan because of the latter’s costs, down payment requirements or property issues.
Slightly Higher Down Payment Requirement
Although FHA loans have a low down payment requirement, some conventional loans may actually have a slightly smaller down payment requirement.
There are two government sponsored companies, Fannie Mae and Freddie Mac, that buy mortgages from lenders. They have their own qualification requirements for those loans.
Both Fannie Mae and Freddie Mac have specific types of loans that only require a 3% down payment, but in order to qualify for them, borrowers are required to have a credit score of at least 620.
Even so, according to Fannie Mae, very few homeowners will be approved for a 3% down mortgage with such a low credit score. A credit score of 680 or more is more likely to result in approval.
To learn more, visit the Fannie Mae website here: https://www.fanniemae.com/.
To access the Freddie Mac website, click here: http://www.freddiemac.com/.
Higher Mortgage Insurance Premiums
Cost of Private Mortgage Insurance (PMI)
With a conventional loan, lenders require private mortgage insurance (PMI) only if the down payment is less than 20% of the purchase price.
PMI typically costs between 0.5% and 1% of the loan amount per year. On a $200,000 mortgage, monthly payments would be in this range:
- Annual payment amount at 0.5% = $1,000/year or $83.33/month
- Annual payment amount at 1% = $2,000/year or $166.67/month
Conventional loan lenders offer low PMI rates to borrowers with good credit. For example, if a borrower puts 15% down on a 15-year fixed-rate mortgage and has a credit score of 760 or higher, the PMI would only be 0.17%. On a $200,000 loan, that works out to $340 per year or $28.33 per month.
Mortgage Insurance Premiums Cannot Be Canceled With FHA Loans
With an FHA loan, MIP cannot be canceled. Borrowers are required to pay it regardless of the amount of equity they build in the home. Borrowers will pay MIP for either 11 years or the life of the mortgage, depending on a variety of factors shown in the section called MIP Cost and Term Table.
On the other hand, with a conventional loan, borrowers are not required to get mortgage insurance at all if they make a down payment of 20% or more. In addition, conventional loan borrowers who make a down payment of less than 20% can cancel private mortgage insurance and stop paying for it when the loan-to-value ratio (LTV) gets to 78% or less.
This can happen by gradually reducing the loan’s principal through regular mortgage payments or by an increase in the property’s value.
- Purchase price = $200,000
- Down payment of $40,000
- No mortgage insurance required
- Purchase price = $200,000
- Down payment of $20,000
- Mortgage insurance required
With an interest rate of 4.5%, a 3% appreciation in value each year and a 30-year term, the loan to value ratio (LTV) will drop to 78% in month 131, at the end of the 10th year.
The borrower can cancel the mortgage insurance at this point.
In a conventional mortgage, private mortgage insurance can also be canceled once borrowers reach halfway through the loan’s term, so 15 years on a 30-year mortgage or 7 ½ years on a 15-year mortgage.
No Jumbo Mortgages with FHA Loans
Sometimes borrowers need to take out a big loan, called a jumbo mortgage. In this case, the loan amount may be higher than the allowable loan limit, and an FHA loan will not be possible. See the section called Loan Amount Limits section for more information.
No Investment Properties or Second Homes with FHA Loans
A requirement to get an FHA loan is that the property needs to be the primary residence of the owner. This means that borrowers cannot use an FHA loan to buy an investment property or second home.
FHA Loan vs. Conventional Loan Comparison
Personal qualifications like credit score, debt-to-income ratio and down payment availability, as well as the characteristics of the property, meaning that if it is going to be a principal residence, will determine if an FHA or a conventional loan may work for a specific borrower.
|FHA Loan||Conventional Loan|
|Minimum credit score||500||620|
|Down payment||3.5% with credit score of 580+ and 10% for credit score of 500 to 579||3% to 20%|
|Loan terms available||15 or 30 years||10, 15, 20 or 30 years|
|Mortgage insurance||Upfront MIP + Annual MIP for either 11 years or the life of the loan, depending on the amount of down payment at origination and the length of the loan||None with down payment of at least 20% or after the loan is paid down to 78% LTV|
|Mortgage insurance premiums||Upfront: 1.75% of the loan + Annual: 0.45% to 1.05%||PMI: 0.5% to 1% of the loan amount per year|
|Down payment sourced from gifts||Up to 100% of the down payment can be a gift||Only part can be a gift if the down payment is less than 20%|
|Down payment assistance programs||Yes||No|
In order to get approved for an FHA loan, the borrower and the property will need to meet certain eligibility requirements.
The credit score requirement is one of the main advantages of an FHA loan for certain borrowers. FHA loans require a much lower minimum credit score than almost any other kind of mortgage. If the borrower has a credit score between 500 and 579, which is considered poor credit, he or she can still get approved for an FHA loan with a down payment of 10% or more.
If the borrower wants to take advantage of the 3.5% down payment, a credit score of 580 or more, which is in the lower range of fair credit, is required. With a conventional mortgage, the minimum allowable credit score is 620.
In addition to meeting minimum credit score requirements, borrowers are required to:
- Have at least two established credit accounts such as a credit card and an auto loan or a gas card and a personal loan
- Not have past due federal debt or judgments, tax-related or otherwise, or debt associated with past FHA-insured mortgages
For other credit requirements, see the section called More Forgiving of Major Credit Problems.
Although FHA loans are meant for low- to moderate-income borrowers, there is no income minimum or maximum for FHA loans. In this, FHA loans differ from some other kinds of low down payment loans.
Although there is no set amount of minimum income, the lender needs to feel confident that the borrower earns enough to make the monthly mortgage payments. That is why lenders require proof of steady employment and income.
Prospective homebuyers could qualify for a down payment of as little as 3.5% with a credit score of 580 or more. In FHA terminology, the down payment is called the “minimum required investment” or MRI. Borrowers can put more toward the down payment, but unlike with conventional loans, a higher down payment (20% or more) will not exempt them from mortgage insurance. Most FHA loan borrowers choose the smallest down payment option of 3.5%.
FHA loans are flexible about the source of funds used for down payment and closing costs. The money can come from any of the following sources, with verification.
Acceptable Down Payment Sources
- Checking and/or savings accounts
- Cash on hand (cash that has not been deposited into a bank account)
- Money withdrawn from retirement accounts
- IRAs – “individual retirement account,” a tax-deferred retirement account
- Thrift savings plans – a tax-deferred retirement savings account for federal employees
- 401(k) plans – a tax-deferred retirement savings account through an employer
- Keogh accounts – a tax-deferred pension plan for self-employed individuals
- Stocks and bonds – shares of publicly traded companies and debt instruments issued by corporations or governments
- Private savings clubs – a bank account in which the owner makes regular deposits to save money for a specific goal
- Gifts and grants (money that does not need to be repaid) from
- Family members
- Employers or labor unions
- Charitable organizations
- Governmental agencies or public entities with homeownership assistance programs for low- or moderate-income families or first-time home buyers
- Note: Gifts from the seller, real estate agent or builder are specifically NOT allowed to be used for down payments or closing costs.
- Sweat equity – work performed or materials furnished by the borrower to improve the property before closing but after the appraisal
- Collateralized loans against assets other than the property being purchased – such as a refinance on another property with cash out or a loan against a stock and bond portfolio
- Note: Unsecured loans like cash advances from credit cards or unsecured personal loans are NOT allowed
- Disaster relief grants and loans – such as from the Federal Emergency Management Agency (FEMA) or Small Business Administration (SBA)
Maximum Loan Amount
The FHA will only approve loans up to a certain amount called the loan limit. The loan limit for low cost areas is called the “floor,” and the loan limit for high-cost areas is called the “ceiling.”
Note: You can read more about loan limits in the section called FHA Loan Terms.
In most counties in the United States, the” floor”, or loan limit in a lower-cost area, for a single-family home is $420,680. In higher cost counties, the “ceiling” is $970,800.
Hawaii, Alaska, Guam and the U.S. Virgin Islands are special exceptions and the loan limit in these areas is $1,456,200.
However, there are some counties where the loan limit is between the “floor” and the “ceiling”. For example, the loan limit in Jacksonville, Florida is $432,400.
For a list of areas where the loan limit is at the ceiling, click here: https://www.hud.gov/sites/dfiles/SFH/documents/2022areasatceiling.pdf
For a list of areas where the loan limit is between the floor and the ceiling, click here: https://www.hud.gov/sites/dfiles/SFH/documents/2022betweenfloorandceiling.pdf.
HUD does not list all of the areas where the loan limit is at the floor, but the loan limit for specific addresses can be found here: https://entp.hud.gov/idapp/html/hicostlook.cfm.
Loan Limits by Number of Units
|Number of Units||Low-Cost Area (Floor)||High-Cost Area (Ceiling)||Special Exception Area (HI, AK, GU, VI)|
Owners of a home that is financed by an FHA loan must be owner-occupants. This means the borrowers of the loan must be the primary occupants of the property. At least one of the borrowers must occupy the home within 60 days of closing when the sale is finalized and the property changes ownership from seller to buyer.
Buyers are prohibited from using the property as a flip. A flip is a type of property that investors buy in order to fix it up and sell at a profit within 90 days.
Buyers are required to title the property in their own names or in the name of a living trust at settlement.
Citizenship and Residency
To get an FHA loan, borrowers do not need to be a U.S. citizen. They can qualify for an FHA loan if they are permanent residents with a green card. Even nonpermanent residents who want to apply for an FHA loan can qualify. Homes purchased with an FHA loan must be within the U.S. or U.S. territories.
All applicants are required to provide a valid Social Security Number, and nonpermanent residents must provide an Employment Authorization Document as well.
HUD offers both individualized housing counseling and group homeownership education courses through a network of HUD Approved Housing Counseling Agencies. These housing counseling agencies may charge a fee for their services, but the fee will be waived if borrowers cannot afford it.
FHA does not require borrowers to participate in housing education and counseling (HEC), but some states or local areas may, either for all borrowers or a subset, such as those with lower credit scores. Borrowers applying for down payment assistance through a government program or nonprofit organization are nearly always required to participate in HEC.
To find HUD-Approved Housing Counseling Agencies, call (800) 569-4287 or click on the appropriate state here: https://apps.hud.gov/offices/hsg/sfh/hcc/hcs.cfm.
Borrowers can also download the HUD Counselor Locator app at https://apps.apple.com/us/app/hud-counselor-locator/id659590295?ls=1. It is not available for Android devices.
HUD has some homebuyer education videos posted on YouTube, which are accessible by clicking on individual videos or subscribing to the HUD channel: https://www.youtube.com/channel/UCvDvWKy-27H-PxCTYi5cyfA.
Eligible Types of Properties
FHA loans are only available on residential properties with one to four housing units. This means that borrowers could use an FHA loan to finance a single-family home, a duplex, a triplex or a quadplex. All units must be in a single building. If the home is a condominium, it must be in an FHA-approved condominium project.
To determine if a condominium is located within an FHA-approved project, click here: https://entp.hud.gov/idapp/html/condlook.cfm.
The FHA requires that the financed property be safe, accessible to vehicles and structurally sound, including:
- A continuing and sufficient supply of safe and potable water under adequate pressure and of appropriate quality for all household uses
- Sanitary facilities and a safe method of sewage disposal.
- Every living unit must have at least one bathroom, which must include, at a minimum, a water closet, lavatory, and a bathtub or shower
- Adequate space for healthful and comfortable living conditions
- Heating adequate for healthful and comfortable living conditions
- Domestic hot water
- Electricity adequate for lighting, cooking and for mechanical equipment used in the living unit
- Working appliances
- Free of all known environmental and safety hazards and adverse conditions that may affect the health and safety of the occupants, including lead paint and methamphetamines
How to Apply for an FHA Loan
Once a borrower has verified that he or she has met the eligibility requirements and wants an FHA mortgage, the next step is to apply.
Finding a Lender
FHA loans are not made directly by the FHA, but through FHA-approved lenders. While each lender must follow FHA’s minimum guidelines for eligibility, individual lenders may have more stringent requirements for approval and may differ on the interest rate they offer for comparable FHA loans.
There are a number of different costs and terms that may differ from lender to lender. Each one can have an effect on how much borrowers would end up paying for the mortgage.
The interest rate is the percentage of the loan balance that the lender charges for the loan. There are two interest rates on lender websites: the interest rate and the annual percentage rate, or APR. The APR is nearly always higher than the interest rate because it includes a variety of fees associated with the mortgage. When comparing mortgage rates, using the APR gives a more complete assessment of the cost involved in the mortgage.
Seemingly small differences in the APR can make a big difference in the amount of interest paid over the life of the loan.
Interest Rate Example
On a $200,000, 30-year fixed rate mortgage, the total interest would be:
- With a 4.5% interest rate:
- Monthly payment = $1,013.37
- Total interest paid over life of the loan = $164,813.42
- With a 5.0% interest rate
- Monthly payment = $1,073.64
- Total interest paid over life of the loan = $186,511.57
Some lenders may now require higher credit scores as a result of the COVID-19 pandemic to protect themselves from risk.
Fixed vs. Variable Interest Rate
When shopping for a mortgage, two interest rates will be shown on lender websites. One is the interest rate for a fixed-rate mortgage and the other is the interest rate for an adjustable rate mortgage (ARM).
With a fixed-rate mortgage, the interest rate and payment amount stay the same for the life of the loan.
With an adjustable rate mortgage (ARM), as market interest rates go up or down, the mortgage interest rate will fluctuate. ARMs have an initial interest rate, which is the rate that the lenders advertise, and it is nearly always lower than the fixed rate.
Depending on how the ARM is structured, the borrower will continue to pay this initial rate for a period of 1-10 years, after which the interest rate will be adjusted. This is expressed like this:
a 5/1 ARM is one in which the borrower pays the initial rate for 5 years, and then the interest rate is adjusted every year. A 10/5 ARM is where the borrower pays the initial rate for 10 years and then it is adjusted every 5 years.
Whenever the interest rate adjusts, the borrower will have a different mortgage payment amount. If interest rates go up significantly, it might cause the mortgage payment to be unaffordable. However, for homeowners who do not plan on staying in the home for the long term and who feel confident that interest rates will remain low or even decrease, an ARM can be a more affordable choice.
Lenders charge a variety of fees in addition to the interest. Not all lenders charge each of these fees, and when they do, the amount varies from lender to lender. Some fees are subject to negotiation.
Lender fees may include:
- Origination fee – This fee compensates the lender for the work done to process the actual loan
- Broker fee – This fee is charged by a mortgage broker for its work finding the borrower a mortgage with favorable rates, if a mortgage broker is used
- Underwriting fee – This fee compensates the lender for evaluating the application and supporting documentation
- Application fee – This fee compensates the lender for accepting and evaluating the initial application
- Credit report fee – This fee compensates the lender for the work involved in pulling the credit report for evaluation
- Discount fee (also called points) – This is an upfront fee that borrowers can choose to pay in exchange for a slightly lower interest rate
- Rate lock fee – This fee is applicable when interest rates are increasing and borrowers ask the lender to “lock in” the lower interest rate they quoted at the time of the application
Other Considerations When Choosing a Lender
Some lenders will give existing account holders better terms and streamline the application process compared to non-customers. Credit unions, because they are nonprofit, may offer lower interest rates and fees than commercial banks.
Search for an FHA-Approved Lender
HUD has an online tool that lists approved lenders by area, type of loan and type of property.
Find an FHA approved lender here: https://www.hud.gov/program_offices/housing/sfh/lender/lenderlist.
When searching for a lender to purchase a single family home, unchecking all boxes except for Mortgage Programs, Single Family Servicer-Originator only and Single Family and Multifamily Originator can help to narrow the search.
Completing the Application for an FHA Loan
The process of applying for an FHA loan is similar to that of applying for a conventional loan.
Before applying, the typical homeowner must find a suitable property to purchase and an approved lender.
- Fill out the FHA loan application
- Gather and submit all required documentation (refer to the section Documentation Needed)
- Wait while the lender reviews documents and credit reports
- Submit any additional documentation required by the lender
- The lender orders an appraisal of the property to determine its value
- Wait while the lender does underwriting (evaluating the application and supporting documentation)
- The lender makes a decision to approve or deny the loan application
The application process could take 4 weeks, or more if more information is needed or the lender’s underwriting department is backed up.
The FHA loan application is called the Uniform Residential Loan Application, or URLA. FHA-approved lenders will have the URLA and will make it available when borrowers tell them that they are interested in applying for an FHA loan.
The URLA can be found here: http://www.fhahandbook.com/blog/wp-content/uploads/2016/03/form65.pdf.
What information does the application require?
The application requires the following information:
- The type of loan the borrower is applying for
- The property address, description and purchase price
- What the money from this loan will be used for (purchase, refinance, construction, other)
- Whether this property will be used as the borrower’s primary residence
- Information about the borrower(s):
- Contact information
- Social Security Number
- Employment information and history
- Monthly income and housing expenses
- Assets (items of value, including cash, that the borrowers own) and liabilities (money that they owe)
- Statement of adverse credit events like judgements, bankruptcies, foreclosures and lawsuits
- Citizenship and residency status
- Demographic information (ethnicity and race), which is optional to provide
- Signatures of all borrowers
In addition to the URLA, borrowers will need to complete HUD form 92900-A, which is an addendum. This form asks borrowers to certify that they will occupy the property, gives the lender permission to verify the borrower’s Social Security Number and asks about other FHA or HUD homes that borrowers own or have owned.
The HUD form 92900-A can be found here: https://www.hud.gov/sites/dfiles/OCHCO/documents/92900-A.pdf.
In order to complete the application, borrowers need to have access to information about their assets, liabilities and housing expenses. This information can be found in relevant documents, which may include:
- Bank statements
- Statements for investment and retirement accounts
- Mortgage statements for the borrower’s current home (if applicable)
- Legal paperwork showing alimony or child support the borrower has been ordered to pay or receive
- Paycheck stubs
- For non-U.S. citizens, green card or Employment Authorization documents
After the application has been received and found to have met FHA and lender criteria, it is given a more thorough review to verify the information and determine any possible risk. This process is called underwriting.
Underwriting requires borrowers to submit additional documents, including:
- Verification of employment – This will be contact information for employers so the lender can call and verify that the borrowers work there
- Federal tax returns for the past 2 years
- If self-employed, federal tax returns for the business
- Photocopy of a Social Security card
- Sales contract for the property
- FHA Amendatory Clause – This document allows borrowers to back out of the sale without penalty if the home appraises for less than the sales price
- Real estate certification – This is signed by the seller, buyer and any real estate agents involved in the transaction certifying that the information in the sales contract is true
- Appraisal report – The appraisal will be ordered by the lender and will be supplied by the appraisal company
The Pre-Approved Application Process
Prospective homebuyers may go through a pre-approval process before they have a contract on a home. This means that they complete all of the application steps so that the lender can give them a tentative approval based on their income, credit score and other financial information. Then, once they find a home that they want to buy, they contact the lender with the property details including address, purchase price and sales contract to finalize their application. This streamlines the process.
In this situation, where the borrower has been pre-approved by the lender and is now coming to the lender with the property details, the application process typically takes between 10 and 20 days. This assumes that all of the documents are present and in good order and that there are not any red flags. Red flags might include a credit score that is too low, a recent loss of employment or a lot of recent credit card debt
After the initial application is submitted and the lender decides that it meets minimum criteria, it is sent to the lender’s underwriting department. The underwriting department will review the information provided and may request additional documentation to verify income, employment, debt amount and other criteria.
With all this information, the underwriter will make an assessment of the following:
- If the borrowers do, in fact, meet the qualifications to be approved for an FHA mortgage
- How much risk is involved in lending to the borrower
- Based on the amount of risk, an adjustment of the interest rate (higher for riskier borrowers or lower for less risky borrowers)
FHA-approved lenders generally input borrowers’ information into a special software called the Automated Underwriting System (AUS) to do underwriting on FHA loans. The system ensures that the borrower and the property meet minimum requirements. They also may use another software, the Technology Open To Approved Lenders (TOTAL) Mortgage Scorecard to assess each overall borrower’s risk.
The AUS will output a feedback certificate with one of three decisions:
- Approve/eligible – This means that the borrower meets credit and capacity requirements as well as other FHA requirements, and the loan application is approved to move forward.
- Approve/ineligible – This means that while the borrower meets credit and capacity requirements, FHA requirements have not been met. Depending on what those discrepancies are, they may be able to be corrected and still be in compliance so that the application can be approved.
- Refer – When the decision is referred, the lender can then go through a manual underwriting process to make sure that everything is correct and complete and to take into account any extenuating circumstances
There are two scenarios wherein an application might be downgraded to a refer decision.
The first scenario in which an application would be downgraded to refer is when the borrower has more than $1,000 in disputed bad credit items. Some borrowers might have late payments and other bad marks on their credit reports and then try to make it look better by disputing them with the credit bureaus, or someone might be in this situation because another person stole the borrower’s identity and the debt does not truly belong to the borrower. In this case, the application would have to be looked at more carefully to find out what is really going on.
When manually underwriting an application where this is the case, the lender is allowed to not count disputed medical debt and disputed derogatory credit resulting from identity theft, credit card theft or unauthorized use as long as the borrower supplies a police report of the theft.
The second situation that would cause a refer decision is if the borrower does not have a sufficient credit history to result in a credit score.
With manual underwriting, the lender must develop a non-traditional credit report. A non-traditional credit report must include at least three entries with information on the borrower’s payment history with rental properties, telephone companies or utility companies. If this information is not available, the lender can use:
- Insurance premiums not payroll deducted (for example, medical, auto, life or renter’s insurance)
- Payment to child care providers made to businesses that provide such services
- School tuition
- Retail store credit cards (for example, from department, furniture, appliance or specialty stores)
- Rent-to-own payments (for example, furniture or appliances)
- Payment of the part of medical bills that is not covered by insurance
- A documented 12-month history of savings evidenced by regular deposits, resulting in an increased balance to the account, that were made at least quarterly, were not payroll deducted, and caused no insufficient funds (NSF) checks
- An automobile lease
- A personal loan from an individual with repayment terms in writing and supported by canceled checks to document the payments
- A documented 12-month history of payment by the borrower on an account for which the borrower is an authorized user
With manual underwriting, some of the FHA requirements can be flexible.
For example, FHA rules require that if there is a Chapter 7 bankruptcy, at least 2 years must have passed before the mortgage application. With manual underwriting, an applicant could potentially be approved with a more recent bankruptcy if he or she can prove that the bankruptcy was a result of extenuating circumstances beyond the borrower’s control and he or she has since exhibited a documented ability to manage their financial affairs in a responsible manner.
Note that the FHA eligibility requirements (see the section called Eligibility Requirements) are the minimum allowed to qualify for the FHA mortgage loan. Meeting those requirements does not necessarily mean that a loan application will be approved. Individual lenders set their own approval criteria and will make the final decision.
Note: Because of the ongoing financial effects that many Americans are still experiencing as a result of COVID-19, some lenders have changed their underwriting standards to make it more difficult for borrowers to be approved for FHA loans.
They may require a higher credit score, using a tiered interest rate with significantly higher rates for lower credit scores and/or employment reverification within a few days of the closing date. Because of this tightening in requirements, lenders may be less likely to be flexible while doing manual underwriting at this time.
What happens if the application is approved?
If the mortgage application is approved, the lender will inform the borrower in writing of the approval and the mortgage terms, including:
- Interest rate
- Adjustable Rate Mortgage details (if applicable)
- Loan term (15 or 30 years)
- Monthly mortgage amount
Then the borrower, lender and the seller will agree on a closing date. The borrower will deposit funds into an escrow account (a special bank account administered by a third party) to cover closing costs.
Several days before the closing, the lender may do an audit to make sure that nothing important like a job loss or adverse credit event has changed since the application was approved.
Closing Costs and Fees
Buyer-paid closing costs average 5% but range between 3% and 6% of the purchase price. Closing costs may include the following:
- Reasonable and customary lender fees
- Origination fee
- Application fee
- Credit report fee
- Discount points
- Prepaid items
- Flood and hazard insurance premiums
- Mortgage insurance premiums (MIP)
- Real estate taxes
- Per diem interest
- Non-realty or personal property items that the borrower agrees to pay for separately
- Upfront MIP payment
- Real estate commission (typically paid by the seller)
- Appraisal fee
- Inspection fee
- Title fee and insurance
- Real estate attorney’s fee
The closing is a meeting, usually in person, but could be virtual or digital, at which the sale of the property is finalized and ownership changes hands from seller to buyer.
The buyer will sign the mortgage, mortgage insurance paperwork and other documents, transfer the balance of the down payment to the seller, and pay closing costs. The seller will sign and provide documents, transfer the title to the property, and hand over the keys. Once the closing is successfully completed, the transaction is complete.
Documents Signed at Closing
The documents at closing include:
- Promissory note – This is a legal document in which the borrower agrees to repay the mortgage loan. It outlines the amount of the loan, the interest rate, late payment penalties and, if it is an adjustable rate mortgage, an explanation of how it can change and the maximum rate allowed.
- Mortgage – This document reiterates the terms in the promissory note and gives the lender the right to foreclose on the property if the borrower defaults on the payments. It also explains the borrower’s rights and responsibilities.
- Initial escrow disclosure – This document breaks down what the borrower will pay into the escrow account each month and what costs the lender will pay out of the escrow account on your behalf. This includes property tax, homeowner’s insurance and private mortgage insurance.
- Deed – The seller will sign this to transfer ownership of the property.
- Closing disclosure – This will detail the closing costs.
- Association documents – If there is a homeowner’s or condominium association, the borrower should receive the documents with the association’s rules and fees at closing.
What happens if the application is denied?
There are two possible times in the application process where an application for an FHA loan could be denied: after application and during underwriting.
Reasons for a Denial
- Credit score too low – This could mean that it is lower than 500, the FHA minimum, or more likely, lower than the lender’s standard. In normal times, lenders generally want to see a credit score of 600 or more but as discussed in the section called Mortgage Underwriting many lenders have changed their credit score requirements because of the lasting effects of COVID-19.
- Insufficient down payment and/or closing costs – If the underwriter discovers that there is not enough money to cover the down payment plus closing costs or if the sources of the funds are not verified or allowed, the loan application will be denied.
- Too much debt – Although the debt-to-income ratio (DTI) can be as high as 50%, some lenders require a lower DTI as a matter of course. Or the underwriter may conclude that a high DTI combined with other factors like a low credit score and little money in the bank make the borrower too risky.
- Property appraisal issues – The loan is likely to be denied if the appraisal is for less than the purchase price of the property. If this is the case, the situation can be resolved by negotiating a lower purchase price.
- Recent bankruptcy or foreclosure – If the adverse credit event happened within the waiting period time frame (see the table “FHA vs. Conventional Loan Waiting Periods After Adverse Credit Events” in the section called More Forgiving of Major Credit Problems), the borrower would have to prove that there were extenuating circumstances. If this cannot be proven to the underwriter’s satisfaction, the loan will be denied.
- The home does not meet FHA’s minimum property requirements – The property must meet certain criteria to qualify for an FHA loan (see the section called Eligible Types of Properties). Appraisals will sometimes uncover details about the property like issues that make it unsafe or unsuitable for occupancy. Most of these issues cannot be corrected in time for the loan to be approved.
- Not on approved condo list – Condominium properties are eligible for FHA loans, but only when they are in FHA-approved condo projects (see the section called Eligible Types of Properties). If the unit is not in an approved project, the loan will be denied.
- The property is an investment or vacation home – To meet qualifications, the property must be the borrower’s primary residence. In rare cases, a second home can be approved but only if it is temporary because of a job relocation or when a second home is needed for a growing family. However, vacation homes and investment properties are never allowed and will result in the denial of the loan application.
Steps After Receiving an FHA Denial Letter
There is no appeals process when an FHA loan is denied. An appeal is only possible for a loan modification (see the section called The Modification Appeals Process.
Both borrowers and the properties being purchased must meet not only FHA minimum qualifications but also lender benchmarks for an FHA loan to be approved. A borrower may meet all FHA requirements, but not the requirements for the specific lender with whom he or she has applied. If there are known issues with one or more of the borrower’s benchmarks, clear communication with the lender at the outset of the process may allow homebuyers to submit disputes and explanations regarding derogatory credit, income or debt to avoid a denial.
That said, if the lender’s benchmarks are significantly more stringent than the FHA requirements, it may make sense to reapply with a different lender. This can be a viable option if the borrower is certain that FHA requirements for down payment, credit score and DTI have been met and/or exceeded.
When it is unclear why a loan application was denied, asking the lender why gives borrowers valuable information on what went wrong and how it can be avoided in the future. Most issues that involve personal finance (credit score, amount of debt, accumulated savings for down payment and closing costs, and time after an adverse credit event) can be resolved with some effort over time. Some steps applicants can take are:
- Paying all bills on time
- Disputing incorrect or outdated derogatory items on credit reports
- Paying down debt
- Saving money for down payment and closing costs
- Selling assets to generate cash for down payment and closing costs
- Arranging for gifts and/or applying for down payment assistance grants
- Increasing income
- Finding someone with good credit and income who is willing to co-sign the loan
When working to fix personal finance issues in order to reapply, homeowners may feel tempted to open new credit card accounts. This may result in a higher DTI, which will damage the prospects of getting approved for a mortgage.
After Buying a Home With an FHA Loan
After the home purchase process is complete, homebuyers will need to make regular mortgage payments and try to avoid foreclosure. Learn more below.
Making Mortgage Payments
The only responsibility that borrowers have in regard to their FHA loan once the property belongs to them is to make regular, on time mortgage payments. The mortgage payment will include:
- The principal due for that month
- The interest due for that month
- The monthly amount for the escrow account to cover
- Homeowner’s insurance
- Property taxes
- If the upfront MIP was rolled into the loan, a portion of that amount
- The monthly MIP due
- Any other costs that were financed
Homeowners will send the monthly mortgage payment to the servicer of the loan. In the beginning, this is the lender (i.e. the bank, credit union or mortgage company) who lent the money for the FHA-backed property purchase.
Sometimes, however, lenders sell mortgage loans to other companies. If this happens, the original lender will inform borrowers about this change by mail and sometimes also via email. Once a loan has been sold, payments must be sent directly to the new loan servicer to ensure that they are credited correctly and in a timely manner.
Borrowers who have an ARM may notice their mortgage payment amounts changing as interest rates increase or decrease. Whatever is the adjusted amount is the amount that will be due going forward until the rate is adjusted again.
Even borrowers with fixed rate mortgages may see their mortgage payments change, as the costs paid by their escrow account (property tax and homeowner’s insurance premiums) fluctuate. Adjustments to the escrow account will happen no more frequently than annually.
Mortgage Insurance Premium Rules
Because private mortgage insurance (PMI) used with conventional loans is cancellable when the LTV reaches 78% (see the section called Higher Mortgage Insurance Premiums), some FHA borrowers may wonder if MIP is also cancellable.
In FHA mortgages, there is only one circumstance in which MIP is cancellable before either 11 years or the mortgage term is complete (see the MIP Cost and Term Table). This is when the mortgage is paid in full before the maturity date.
When an FHA borrower experiences financial hardship, he or she may have difficulty making monthly mortgage payments. If this continues without intervention, the lender will foreclose on the home by taking possession of it and eventually selling it to someone else.
Foreclosure negatively impacts the borrower with a long-lasting and serious adverse credit event, the loss of housing and the loss of the asset of the home. It also negatively affects the lender because of lost interest income over the balance of the loan and the FHA because of mortgage insurance premiums that must be paid to the lender.
To avoid these negative outcomes, there are several foreclosure mitigation programs available to homeowners.
Did You Know?
Federal law gives homeowners 120 days to try foreclosure mitigation before foreclosure action can be initiated by the lender.
Although the federal government instituted several foreclosure mitigation programs during the 2008 housing crisis such as the Home Affordable Modification Program (HAMP), the Principal Reduction Alternative (PRA), the Second Lien Modification Program (2MP) and the Home Affordable Refinance Program (HARP), these programs have expired and are no longer available to homeowners in trouble.
HUD has not updated its website and these expired programs are still listed online as options. The only federally mandated foreclosure mitigation programs currently in effect are related to the COVID-19 pandemic and other national disasters, and will be detailed below and may vary by state. If you have questions, you may try to contact your lender.
Federal Mortgage Assistance Programs
When borrowers cannot make their mortgage payments on time, there are a variety of ways that the lender/loan servicer can help. These programs to assist borrowers are called loss mitigation programs or mortgage assistance.
Homeowners struggling to pay their mortgage bills on time can call HUD’s national housing counseling hotline at 1-800-CALL FHA (800-225-5342). HUD counselors provide free advice on foreclosure mitigation programs as well as other ways to avoid foreclosure. Homeowners can also contact a local HUD counseling office, which can be found online. See the section titled Homeowner Education.
FHA Home Affordable Modification Program (HAMP)
FHA borrowers who qualify can reduce their mortgage payments through the FHA Home Affordable Modification Program (HAMP). Under HAMP, borrowers can get a partial claim up to 30% of the unpaid principal balance combined with a loan modification.
A partial claim takes all of the unpaid mortgage payments and separates them into a secondary lien that is paid when the mortgage term is over or when the home is sold, whichever comes first. In addition to the partial claim, the FHA HAMP can modify the terms of the loan to reduce the interest rate or extend the term so that the payments are affordable. This is called a loan modification.
Borrowers with an FHA HAMP are required to demonstrate that they can make the modified mortgage payments by paying them on time during a three month trial period. If the borrower does not make the trial payments on time, he or she loses eligibility to participate in the FHA HAMP and foreclosure actions may ensue.
The Modification Appeals Process
If a borrower requests a loan modification 90 days or more before a foreclosure sale, has submitted all requested documentation to the servicer of the loan, and the request has been denied by the servicer, the servicer is required to notify the borrower of the option to appeal the denied modification. The borrower has 14 days to decide to appeal the denial of the modification. The servicer will describe the appeals process in a letter sent to the borrower. During the appeal, the documents are reviewed by different personnel than those responsible for evaluating the borrower’s original loss mitigation application.
Within 30 days of a borrower making an appeal, the servicer is required to provide a notice to the borrower stating the servicer’s determination of whether the servicer will offer the borrower a loss mitigation option based upon the appeal and, if applicable, how long the borrower has to accept or reject such an offer or a prior offer of a loss mitigation option. A servicer must give the borrower at least 14 days to accept or reject an offer of a loss mitigation option after an appeal. After the decision has been made on the appeal, the borrower cannot appeal again.
Disaster Loan Modification
If an FHA-insured property is located in a Presidentially-Declared Major Disaster Area such as an area devastated by wildfires, floods, tornados or hurricanes, it is eligible for a disaster loan modification. A loan modification is when the lender offers the borrower changes to the original terms of the loan to make it more affordable. Changes might include a lower interest rate or a longer term.
In order to qualify for a disaster loan modification, the borrower is required to:
- Have been current or less than 30 days past due with payments on the loan when the disaster was declared
- Have income that is equal to or more than the income reported when the loan was approved, as verified by a W-2, a pay stub or other documentation
- If income documentation is not available, the borrower can complete a three month trial payment plan (TPP).
- Occupy the home
Partial Claim Through the Lender
In a partial claim, the lender gives the homeowner a second loan in the amount needed to bring the loan current. The second loan is interest-free and is payable at the end of the mortgage term or when the property is sold, whichever comes first.
Lender Foreclosure Mitigation
Lenders also provide foreclosure mitigation programs to homeowners experiencing financial distress from causes unrelated to a pandemic or national disaster. These include:
- Repayment plan
- Loan modification
- Partial claim
- Short sale
- Deed-in-lieu of foreclosure
A repayment plan is an arrangement that takes place after a forbearance period and outlines how missed payments will be paid. The missed payments are totaled and then split into a certain number of payments that are affordable for the borrower. These additional payments are then added to the monthly mortgage payments for that number of months until the amount is paid off.
A short sale is when the homeowner sells the home for less than the unpaid principal balance on the loan. This would only be an option if the borrower could not sell the home for an amount equal to or more than the principal balance due. The lender would accept the amount of the sale as all or part of satisfying the debt. Although it would negatively impact the borrower’s credit history, it would be less damaging than a foreclosure.
Deed-in-Lieu of Foreclosure
In this option, the borrower would negotiate with the lender (the bank, credit union or mortgage company) to voluntarily hand over the deed to the property in exchange for a release from the mortgage loan and payments. In some cases, the lender would pay the borrower’s relocation costs. Like a short sale, deed-in-lieu of foreclosure is damaging to the borrower’s credit but less so than a foreclosure.
Other FHA & HUD Programs
In addition to the Basic Home Mortgage Loans, or Section 203(b) loans for purchasing a home, FHA and its parent agency, HUD, offer other types of loans and homeownership programs.
The application process for most of these loans is the same as for a basic mortgage loan. Refer to the section called Application Steps for more information. If the application process is different for a specific program, it will be noted below.
Home Equity Conversion Mortgage (HECM)
The Home Equity Conversion Mortgage, or HECM, is a reverse mortgage loan. A reverse mortgage is where rather than borrowing money from a lender to buy a home and then gradually paying the lender until the homeowner owns the property 100%, a homeowner with a significant amount of equity in a :pensproperty takes a loan out against that equity and the lender pays the homeowner.
The money may be paid to the homeowner in a lump sum (for fixed-rate HECM) or in monthly installments (for ARM HECM). Reverse mortgages are designed for seniors who have equity in their homes and want to use that to supplement their income.
Borrowers must meet the following criteria:
- Be 62 years of age or older
- Own the property outright or have at least 50% equity
- Occupy the property as a principal residence
- Not be delinquent on any federal debt
- Be able to make timely payment of ongoing property expenses like property taxes, insurance and homeowner association fees
- Participate in a consumer information session given by a HUD-approved HECM counselor
- Call (800) 569-4287 to find a HECM counselor or search here https://entp.hud.gov/idapp/html/hecm_agency_look.cfm.
In addition to the above, the property must meet these requirements:
- It must be a single family home or 2-4 unit home with one unit occupied by the borrower
- It must meet all FHA property standards and flood requirements
- If a condo, it must be in a HUD-approved condominium project
- For a manufactured home, it must meet FHA-specific requirements
Section 245 Loan (GPM)
The Section 245 loan is also called a Graduated Payment Mortgage (GPM) and is designed for borrowers with low income now, but whose income is expected to increase. With this mortgage, payments start off low and then increase by a certain percentage each year for 5 or 10 years, after which it will remain at the highest level.
In the beginning of the loan, the payments are much lower than they would be with a regular mortgage, which is a process called negative amortization. As time goes by and payments increase, the payments catch up with what they would be with a regular mortgage and then increase slightly to make up the shortfall from the early years. There are 5 plans:
- Plan I – Monthly mortgage payments increase 2 ½% each year for five years
- Plan II – Monthly mortgage payments increase 5% each year for five years
- Plan III – Monthly mortgage payments increase 7 ½% each year for five years
- Plan IV – Monthly mortgage payments increase 2% each year for ten years
- Plan V – Monthly mortgage payments increase 3% each year for ten years
With this type of loan, the maximum loan amount is limited to 97% of the first $25,000 plus 95% of the purchase price over $25,000. However, it cannot be more than $60,000.
For a home that costs $55,000, the maximum loan amount would be:
- 97% of $25,000 = $24,250
- 95% of $30,000 = $28,500
Maximum loan amount = $52,750
Down payment $2,250 or 4.1%
You can find the program website here: https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh/4240.2.
Section 245 loans are only available for owner-occupied single family homes. Other than that, all eligibility requirements for Section 245 loans are the same as for 203(b) mortgages. See Eligibility Requirements for more information.
245(a) Loan (GEM)
This 245(a) Growing Equity Mortgage (GEM) loan is very similar to the 245 Graduated Payment Mortgage (GPM), with one major difference. Like the GPM, the GEM is designed for borrowers who expect their incomes to grow over time and it involves increasing mortgage payments according to a set schedule. However, with a GEM, there is never negative amortization. Payments build up to more than the amount would be with a regular mortgage in order to help homeowners reduce the mortgage term, save money on interest and build equity faster.
You can find more information here: https://www.hud.gov/sites/documents/40002C6HSGH.PDF.
All eligibility requirements for Section 245(a) loans are the same as for 203(b) mortgages. See Eligibility Requirements for more information.
203(k) Rehab Loan
The Rehab loan, also called the limited 203(k) loan, allows homebuyers to borrow between $5,000 and $35,000 for repairs or rehabilitation of a home that needs work in addition to the amount needed to purchase or refinance the home. The funds for the repairs will be kept in an account that is administered by the lender and paid to the contractor as needed. Repairs can be relatively minor, or as extensive as rebuilding a home that has been demolished as long as the foundation remains intact.
Eligible repairs include:
- Structural alterations and reconstruction
- Modernization and improvements to the home’s function
- Achieving health and safety hazards
- Changes that improve appearance and eliminate anything outdated
- Reconditioning or replacing plumbing
- Adding or replacing roofing, gutters, and downspouts
- Adding or replacing flooring
- Major landscape work and site improvements
- Enhancing accessibility for a disabled person
- Making energy conservation improvements
You can find the program website here: https://www.hud.gov/program_offices/housing/sfh/203k.
All eligibility requirements for Section 203(k) loans are the same as for 203(b) mortgages. See Eligibility Requirements for more information.
Energy Efficient Mortgage
The Energy Efficient Mortgage, or EEM, is a mortgage loan where special consideration is given if the home has energy efficient features already in place or if the buyer wants to add energy efficient features to the home.
In the first case, the loan limits (see the section titled Maximum Loan Amount) can be exceeded because of the energy-related value given and monthly savings.
In the second case, loan limits can be exceeded, plus there is no requalifying or additional down payment required for energy efficient refinances.
Like with the 203(k) loan, the Energy Efficient Mortgage can provide additional cash during the initial purchase of the home, as long as the money is used for energy improvements. The energy upgrades would be completed after closing.
Prospective buyers and homeowners interested in getting an EEM are required to get a Home Energy Assessment which will:
- Recommend energy-saving improvements for the borrower’s consideration
- Estimate how much money each improvement will save in energy costs
- Estimate the cost to make each improvement
You can find the program website here: https://www.hud.gov/program_offices/housing/sfh/eem/energy-r.
All buyers who qualify for a home loan qualify for an EEM. Both existing and newly constructed properties are eligible.
Title 1 Property Improvement Loan
FHA-insured Title I loans may be used for any improvements that will make a home more livable and useful such as improvements to its accessibility for a disabled person or energy improvements. In addition to structural improvements, the funds can also be used for built-in appliances like dishwashers, refrigerators, freezers, and ovens. Title 1 funds cannot be used to build or renovate “luxury-type items” such as swimming pools or outdoor fireplaces, or to pay for renovation work that has already been completed.
Homeowners can implement the improvements on a do-it-yourself basis or through a contractor or dealer. If a contractor is used, the loan proceeds can be used to pay for the contractor’s materials and labor, but if the homeowner does the work himself, only the cost of materials may be financed.
Some of the advantages of the Title I loan insurance program are:
- If the loan is less than $7,500, no security is needed
- No refinancing is needed; the original mortgage stays in place
- The loan can cover architectural and engineering costs, building permit fees, title examination costs, appraisal fees, and inspection fees in addition to labor and material costs
- The application and approval process is relatively quick and easy, with approval usually only taking a few days.
- Homeowners have some protection from unscrupulous contractors, since contractors need to first be approved by the lender
You can find the program website here: https://www.hud.gov/program_offices/housing/sfh/title/ti_abou.
Title 1 Maximum Loan Amounts and Terms
|Type of Home||Maximum Loan Amount||Maximum Loan Term|
|Single family home||$25,000||20 years|
|Manufactured home that qualifies as real property||$25,090||15 years|
|Manufactured home classified as personal property||$7,500||12 years|
|Multi-family property||$60,000 but not more than $12,000 per dwelling unit||20 years|
Since these loans are much smaller than a mortgage loan, it is easier to qualify, but borrower DTI must be 45% or less.
Disaster Victims Loan Section 203(h)
The Section 203(h) loan is for people who have lost their homes in a presidentially-designated disaster area and who are in the process of rebuilding or buying a new home.
The main benefit of this loan is that no down payment is required; 100% of the cost of the home or reconstruction of the home can be financed. Closing costs, mortgage insurance and loan limits are as normal for an FHA loan.
These loans may be processed somewhat quicker than a regular mortgage since lenders are not required to submit paperwork to HUD.
You can find the program website here: https://www.hud.gov/program_offices/housing/sfh/ins/203h-dft#:~:text=Summary%3A,rebuilding%20or%20buying%20another%20home.
Borrowers are eligible if they are in a presidentially-declared disaster zone and their existing home has been destroyed or seriously damaged such that reconstruction or replacement is necessary. The home must be a single-family home that is the principal residence of the borrower(s). The loan application must be made within one year of the disaster declaration.
Streamline Refinance Loan
The streamline refinance is for homeowners with an existing FHA mortgage who want to improve the terms of their mortgage (such as the interest rate or the term length). With this option, the amount of documentation required by the lender is significantly reduced and the underwriting is quicker.
There are still closing costs, although some lenders offer a “no cost” refinance. “No cost” refinance means that the borrower has no out of pocket closing costs, but the interest rate will be higher than if closing costs were paid in cash. Lenders are prohibited from financing closing costs in this transaction.
The current FHA mortgage must be current to qualify for this program. The refinance will only be approved if FHA determines that there is a net tangible benefit to the borrower, such as a lower interest rate or a better term.
Indian Reservations and Other Restricted Lands Loan (248)
The 248 loan is similar to the basic home mortgage except that, on Indian reservations, the land is sometimes owned not by the homeowner but by the tribe. For this loan, borrowers need to be a member of a federally recognized tribe with a designated reservation to be eligible.
Further, the borrower would need to arrange for the lease or designation of the land with the relevant tribal authority, although the loan would be in the borrower’s name and not the tribe’s. The tribe would then send its paperwork to the HUD Homeownership Center servicing the tribe.
In the event the financed home is resold, the tribe must approve the new buyer. If the borrower fails to make payments and loses the home through foreclosure, FHA will try to resell the home to a qualified Indian family, with tribal approval. If a buyer is not found, the tribe may suggest a renter for the home, or it may buy the home itself.
Some of the advantages of a 248 loan are:
- Up to 97% financing
- An eligible party can produce a gift for the down payment
- Closing cost can be financed, covered by a gift, grant, or secondary financing, or paid by the seller without reduction in value
You can find the program website here: https://www.hud.gov/program_offices/housing/sfh/ins/sfh248.
All financial eligibility requirements for Section 248 loans are the same as for 203(b) mortgages. See the section called Eligibility Requirements, for more information.
Hawaiian Home Lands Loan
Similar to the 248 loan, the Hawaiian Home Lands loan is available for properties on Hawaiian Home Lands and is only available to Native Hawaiians.
You can find the program website here: https://dhhl.hawaii.gov/contact/loans/.
HUD Homes for Sale
When borrowers default on FHA insured loans, HUD takes ownership in foreclosure and then sells those properties. These homes are often sold for below-market prices.
HUD Homes are listed online here: https://www.hudhomestore.com/Home/Index.aspx.
HUD Homeownership Vouchers
Prospective homebuyers who live in public housing and have never bought a home before may qualify for the HUD Housing Choice Voucher program. Under this program, HUD, through a local public housing agency (PHA) will grant a monthly amount to assist with mortgage and other housing expenses.
Individual PHAs may also have additional homebuying programs through which public housing residents can purchase public housing units.
Find and contact local PHAs here: https://www.hud.gov/program_offices/public_indian_housing/pha/contacts.
Prospective homeowners need to:
- Take a pre-assistance homeownership and housing counseling class.
- Meet minimum income requirements.
- If you are diabled or elderly, the limit is the monthly Federal Supplemental Security Income (SSI) benefit for an individual living alone (or paying his or her share of food and housing costs) multiplied by 12.
- For everyone else, the limit is the federal minimum wage($7.25) multiplied by 2,000 hours = $14,500 not including any welfare payments.
- Have a full-time job with continuous employment for the previous year, except in the case of the disabled or elderly.
HUD Good Neighbor Next Door Program
This program only provides loans for homes located in designated revitalization areas, and is only available to:
- law enforcement officers,
- pre-Kindergarten through 12th grade teachers,
- firefighters, and
- emergency medical technicians.
You can find the program website here: https://www.hud.gov/program_offices/housing/sfh/reo/goodn/gnndabot.
Under the Good Neighbor Next Door program, prospective homeowners receive a 50% discount on the purchase price of the home. Some of these properties are eligible for a 203(k) loan (see the section called 203(k) Rehab Loan); those that are eligible for 203(k) loans will have a note to that effect in the listing. Borrowers will still be required to pay closing costs and real estate commissions.
Eligible applicants bid on the property they want to buy through a HUD-registered Selling Broker or Selling Agent.
To locate HUD-registered Selling Brokers in the area, visit the HUD Homes website at: https://www.hudhomestore.com and click on the subheading “Broker Search” in the gray toolbar.
You can also find listings of available properties for this program here: https://www.hudhomestore.com/Home/GNND.aspx.
To be eligible for the Good Neighbor Next Door program, homebuyers have to commit to living in the home for a minimum of 36 months as their primary residence. As a guarantee that they will stay in the home for at least 36 months, homebuyers are required to sign a second mortgage for the amount of the 50% grant. If they meet the requirement of living in the home for at least 36 months, there will be no interest or payments on this “silent” second mortgage.