FHA Home Loans
While Down Payment Solutions™ does not originate mortgage loans, we do endorse the HUD insured FHA Home Loan program, especially for first time home buyers. Contrary to popular thinking, the FHA program is not just for low income home buyers, it is actually a program designed for everyone, whether a first time buyer or a seasoned home owner regardless of income. While granted, there are loan limits, these limits are designed to protect the program from losses, and this benefits everyone who takes advantage of all the programs have to offer.
Benefits For The Home Buyer Include:
- During periods of rising rates, the FHA Loan will typically offer the homebuyer a lower starting rate than a comparable Conventional mortgage product. This is primarily due to the fact that the FHA Interest Rates tend to lag behind Conventional interest rates by 2 to 5 days. This difference can potentially save a borrower anywhere from .125% to .25% in the rate they are able to Lock-in.
- The FHA program offers the typical homebuyer comparable terms to Conventional home loan programs at usually a lower monthly mortgage payment. This is a result of the lower monthly cost of MIP (Mortgage Insurance Premiums).
- A much lower cost Versus a Conventional Mortgage to Refinance for improved rate and terms using the Streamline Refinance option offered by FHA. This factor becomes even more important as interest rates increase.
- Easier qualification, long term, for a refinance and consolidation of debt with recent credit dings at a much lower interest rate Vs. comparable product offering where credit issues exist.
- The FHA Loan is assumable by qualified home buyers. This is important for two reasons.
- As rates increase, and the Real Estate Market transitions to a “Buyers Market”, it is a selling point for your home. Allowing you to maximize your asking price to qualified buyers who want your lower payment, principle pay down and interest rate.
- In times of personal financial crises, it allows for a quick exit of the property with potential options to sell to a credit challenged home buyer who may have significant cash to offer, in exchange for a lower interest rate, lower payments, higher pay down of existing principle and easier qualification.
- Finally, and the most important, a comprehensive Loss Mitigation program that exceeds any options presently offered via Conventional Mortgage programs. This program is NOT available through HUD for VA Home Buyers or Conventional Home Buyers.
What Is Loss Mitigation
Many home buyers who start out purchasing a home never dream there could come a day when financial disruptions can put their home in jeopardy. Unfortunately, “Life Happens” and homeowners can lose their jobs, experience serious medical issues, or some other significant financial crises. The concept of Loss Mitigation is really simple. It is a series of Opportunities that HUD has in place that assist home buyers in curing defaults that have resulted from nonpayment of their mortgage.
In 2004, 54% of FHA Insured home owners who were in the Foreclosure process avoided the loss of their home as a result of one of HUD’s Loss Mitigation programs. Of that total, an astounding 93% (78,525) were able to keep their homes. As more and more homeowners are educated to the options available, this number is sure to only increase.
The programs offered by HUD for Loss Mitigation fall into two categories.
Home Retention Options: Special Forbearance, Mortgage Modification and Partial Claim and are designed to assist home owners in curing the default.
- Special Forbearance: A Lender can arrange for a revised payment plan that may include the temporary reduction, or the suspension, of payments.
- Mortgage Modification: Your Lender may allow the refinance of debts and/or extend the terms of you mortgage loan, which will reduce your monthly mortgage payment.
- Partial Claim: A Lender may be able to assist you in obtaining an Interest Free Loan from HUD to bring your Mortgage Current. Typically, these loans require no repayment until your 1st Mortgage is paid in Full.
Non-Retention Options: Pre-Foreclosure Sale and Deed-In-Lieu of Foreclosure Sale, are designed to minimize loss to both the home owner and the FHA Program. Both of these options require the homeowner to relinquish possession of the home.
- Pre-Foreclosure Sale: Allows you to sell your home on the market to pay off your mortgage and avoid foreclosure, even if the proceeds are less than the amount owed.
- Deed-In-Lieu of Foreclosure: Let you voluntarily “give back” your property to the Lender in exchange for a release from all obligations under the mortgage. This saves You and the Lender the potential costs and losses associated with the foreclosure process.
HUD’s Loss Mitigation program is really a unique approach to mortgage default. Many, Many home owners receive the benefit of staying in their homes, limiting damage to their credit ratings and the reduction of stress that can distract many from resolving the financial issues that created the default. Both HUD and Lenders benefit in avoiding the cost and losses that can result from foreclosing on properties in default. A real Win/Win for everyone.
Given all of the options available to the average home buyer seeking to finance their home with a traditional mortgage product, the FHA Loan Program is, without exception, the best investment a homebuyer can make to the long term security of home retention in today’s market and the many tomorrow’s that will follow.
To learn more about HUD’s Home Retention Programs, contact your local HUD-approved housing counseling agency @ 1-800-483-2209.