The Federal Housing Administration, or FHA, an agency of the U.S. Department of Housing and Urban Development (HUD), insures some mortgages through its Section 203(b) loan program. The program, which has its roots in mortgage insurance plans that began during the Great Depression, allows low-income and first-time home buyers the opportunity to purchase a home. By the late 1990s, the FHA was insuring about 800,000 homes per year, and had a total of about 7 million homes worth almost $400 billion in the program.
An FHA loan comes from a bank or another qualified lending institution, and can be used to cover a single-family home, a multi-family home, manufactured housing, and certain other properties. If the mortgage is insured by the FHA, the lender is protected against loan default. While a down payment on a conventional mortgage may be as much as 20 percent of the total cost, those with an FHA-insured loan could pay as little as 3 percent.
The program has limits on the amount it will insure, depending on the county in which the house is located. In some parts of the country, the limit is in the $160,000 range, though it can reach almost to $300,000 in California. The FHA also determines which closing costs will be charged to the seller and which to the buyer. For example, the buyer may be asked to pay for home inspection, the cost of title inspection, a survey of the property, and fees charged by an attorney handling the closing. However, in some cases, HUD will cover some of the closing costs.
Energy Efficient Loans Insured by HUD
Home buyers and those who are refinancing through HUD may be able to include the cost of improvements to make the home more energy efficient through HUD’s Energy Efficient Mortgage Insurance Program. The program provides funds for energy efficient improvements up to $4,000 or 5 percent of the property’s value (not to exceed $8,000), whichever is greater.
HUD-Insured Rehab Loans
HUD loans ranging from $5,000 to as much as $25,000 are available for homeowners who are making improvements of homes that are at least a year old. Such loans have no upfront mortgage insurance premium.
Loans for Those Who Are Special Credit Risks
HUD insures loans for those who have a poor credit rating and would not otherwise be eligible to buy low cost homes.