Victor Bals

5. How do I select the right real estate agent?

Start by asking family and friends if they can recommend an agent. Compile a list of several agents and talk to each before choosing one. Look for an agent who listens well and understands your needs and whose judgment you trust. The ideal agent knows the local area well and has resources and contacts to help you in your search. Overall, you want to choose an agent that makes you feel comfortable and can provide all the knowledge and services you need.

6. How can I determine my housing needs before I begin the search?

Your home should fit the way you live, with spaces and features that appeal to the whole family. Before you begin looking at homes, make a list of your priorities; things like location and size. Should the house be close to certain schools? your job? to public transportation? How large should the house be? What type of lot do you prefer? What kinds of amenities are you looking for? Establish a set of minimum requirements and a "wish list." Minimum requirements are things that a house must have for you to consider it, while a "wish list" covers things that you'd like to have but aren't essential.

FHA - FINDING YOUR HOME

7. What should I look for when deciding on a community?

Select a community that will allow you to best live your daily life. Many people choose communities based on schools. Do you want access to shopping and public transportation? Is access to local facilities like libraries and museums important to you? Or do you prefer the peace and quiet of a rural community? When you find places that you like, talk to people that live there. They know the most about the area and will be your future neighbors. More than anything, you want a neighborhood where you feel comfortable in.

8. What should I do if I'm feeling excluded from certain neighborhoods?

Immediately contact the U.S. Department of Housing and Urban Development (HUD) if you ever feel excluded from a neighborhood or particular house. Also, contact HUD if you believe you are being discriminated against on the basis of race, color, religion, sex, nationality, familial status, or disability. HUD's Office of Fair Housing and Equal Opportunity has a hotline for reporting incidents of discrimination: 1-800-669-9777 (and 1-800-927-9275 for the hearing impaired).

9. How can I find out about local schools?

You can get information about school systems by contacting the city or county school board or the local schools. Your real estate agent may also be knowledgeable about schools in the area.

10. How can I find out about community resources?

Contact the local chamber of commerce for promotional literature or talk to your real estate agent about welcome kits, maps and other information. You may also want to visit the local library. It can be an excellent source for information on local events and resources.

11. How can I find out how much homes are selling for in certain communities and neighborhoods?

Your real estate agent can give you a ballpark figure by showing you comparable listings. If you are working with a real estate professional, they may have access to comparable sales maintained on a database.

12. How can I find information on the property tax liability?

The total amount of the previous year's property taxes is usually included in the listing information. If it's not, ask the seller for a tax receipt or contact the local assessor's office. Tax rates can change from year to year, so these figures may be approximate.

13. What other tax issues should I take into consideration?

Keep in mind that your mortgage interest and real estate taxes will be deductible. A qualified real estate professional can give you more details on other tax benefits and liabilities.

14. Is an older home a better value than a new one?

There is no definitive answer to this question. Generally, older homes may be in more established neighborhoods, offer more ambiances and have lower property tax rates. People who buy older homes, however, shouldn't mind maintaining their home and making some repairs. Newer homes tend to use more modern architecture and systems are usually easier to maintain and may be more energy-efficient. People who buy new homes often don't want to worry initially about upkeep and repairs.

15. What should I look for when walking through a home?

In addition to comparing the home to your minimum requirement and wish lists, consider the following:

Is there enough room for both the present and the future?

Are there enough bedrooms and bathrooms?

Is the house structurally sound?

Do the mechanical systems and appliances work?

Is the yard big enough?

Do you like the floor plan?

Will your furniture fit in the space?

Is there enough storage space? (Bring a tape measure to better answer these questions.)

Does anything need to repaired or replaced? Will the seller repair or replace the items?

Imagine the house in good weather and bad and in each season. Will you be happy with it throughout the year?

Take your time and think carefully about each house you see. Ask your real estate agent to point out the pros and cons of each home from a professional standpoint.

16. What questions should I ask when looking at homes?

Focus on identifying potential problems and maintenance issues. Does anything need to be replaced? What things require ongoing maintenance (e.g., paint, roof, HVAC, appliances, carpet)? Also ask about the house and neighborhood, focusing on quality of life issues. Be sure the seller's or real estate agent's answers are clear and complete. Ask questions until you understand all of the information they've given. Making a list of questions ahead of time will help you organize your thoughts and arrange all of the information you receive.

17. How can I keep track of all the homes I see?

If possible, take photographs of each house: the outside, the major rooms, the yard and extra features that you like or ones you see as potential problems. And don't hesitate to return for a second look. Use the HUD Home Scorecard to organize your photos and notes for each house.

18. How many homes should I consider before choosing one?

Visit as many as it takes to find the one you want. On average, homebuyers see 15 houses before choosing one. Just be sure to communicate often with your real estate agent about everything you're looking for. Such communications will help avoid wasting your time.

FHA - YOU'VE FOUND IT

19. What does a home inspector do and how does an inspection figure in the purchase of a home?

An inspector checks the safety of your potential new home. Home inspectors focus especially on the structure, construction and mechanical systems of the house and will make you aware of any repairs that are needed.

The inspector does not evaluate whether or not you're getting good value for your money. Generally, an inspector checks (and gives prices for repairs on): the electrical system, plumbing and waste disposal, the water heater, insulation and ventilation, the HVAC system, water source and quality, the potential presence of pests, the foundation, doors, windows, ceilings, walls, floors and roof. Be sure to hire a home inspector that is qualified and experienced.

It is a good idea to have a home inspection before you sign a written offer or make the written offer contingent upon a satisfactory Home Inspection because, once the deal is closed you've bought the house "as is". An inspection clause gives you an "out" on buying the house if serious problems are found, or gives you the ability to renegotiate the purchase price if repairs are needed. An inspection clause can also specify that the seller must fix the problem(s) before you purchase the house.

20. Do I need to be there for the inspection?

It is not required, but it is a good idea. Following the inspection, the home inspector will be able to answer questions about the report and any problem areas. You will have an opportunity to hear an objective opinion on the home you would like to purchase and to ask general, maintenance questions.

21. Are other types of inspections required?

If your home inspector discovers a serious problem a more specific inspection may be recommended. It's a good idea to consider having your home inspected for the presence of a variety of health-related risks like radon gas asbestos or possible problems with the water or waste disposal system.

22. How can I protect my family from lead in the home?

If the house you're considering was built before 1978 and you have children under the age of seven, you will want to have an inspection for lead-based paint. It's important to know that lead flakes from paint can be present in both the home and in the soil surrounding the house. The problem can be fixed temporarily by repairing damaged paint surfaces or planting grass over effected soil. Hiring a lead abatement contractor to remove paint chips and seal damaged areas will fix the problem permanently.

23. Are power lines a health hazard?

There are no definitive research findings that indicate exposure to power lines results in greater instances of disease or illness.

24. Do I need a lawyer to buy a home?

Laws vary by state. Some states require a lawyer to assist in several aspects of the home buying process while other states do not, as long as a qualified real estate professional is involved. Even if your state doesn't require one, you may want to hire a lawyer to help with the complex paperwork and legal contracts. A lawyer can review contracts, make you aware of special considerations and assist you with the closing process. Your real estate agent may be able to recommend a lawyer. If not, shop around. Find out what services are provided for what fee and whether the attorney is experienced at representing homebuyers.

25. Do I really need homeowner's insurance?

Yes. A paid homeowner's insurance policy (or a paid receipt for one) is required at closing, so arrangements will have to be made prior to that day. Plus, involving the insurance agent early in the home buying process can save you money. Insurance agents are a great resource for information on home safety and can give tips on how to keep insurance premiums low.

26. What steps could I take to lower my homeowner's insurance costs?

Be sure to shop around among several insurance companies. Also, consider the cost of insurance when you look at homes. Newer homes and homes constructed with materials like brick tend to have lower premiums. Think about avoiding areas prone to natural disasters, like flooding. Choose a home with a fire hydrant or a fire department nearby.

27. Is the home located in a flood plain?

Your real estate agent or lender can help you answer this question. If the home is located in a flood plain, the lender will require that you have flood insurance before lending any money to you. But if the home is located near a flood plain, you may choose whether or not to get flood insurance coverage for your home. Work with an Insurance agent to select a policy that fits your needs.

28. What other issues should I consider before I buy my home?

Always check to see if the house is in a low-lying area, in a high-risk area for natural disasters (like earthquakes, hurricanes, tornadoes, etc.), or in a hazardous materials area. Be sure the house meets building codes. Also consider local zoning laws, which could affect remodeling or making an addition in the future. Your real estate agent should be able to help you with these questions.

29. How do I make an offer?

Your real estate agent will assist you in making an offer, which will include the following information:

Complete legal description of the property

Amount of earnest money

Down payment and financing details

Proposed move-in date

Price you are offering

Proposed closing date

Length of time the offer is valid

Details of the deal

Remember that a sale commitment depends on negotiating a satisfactory contract with the seller, not just making an offer.

30. How do I determine the initial offer?

Unless you have a buyer's agent, remember that the agent works for the seller. Make a point of asking him or her to keep your discussions and information confidential. Listen to your real estate agent's advice, but follow your own instincts on deciding a fair price. Calculating your offer should involve several factors: what homes sell for in the area, the home's condition, how long it's been on the market, financing terms and the seller's situation. By the time you're ready to make an offer, you should have a good idea of what the home is worth and what you can afford. And, be prepared for give-and-take negotiation, which is very common when buying a home. The buyer and seller may often go back and forth until they can agree on a price.

31. What is earnest money? How much should I set aside?

Earnest money is money put down to demonstrate your seriousness about buying a home. It must be substantial enough to demonstrate good faith and is usually between 1-5% of the purchase price (though the amount can vary with local customs and conditions). If your offer is accepted, the earnest money becomes part of your down payment or closing costs. If the offer is rejected, your money is returned to you. If you back out of a deal, you may forfeit the entire amount.

32. What are "home warranties" and should I consider them?

Home warranties offer you protection for a specific period of time (e.g., one year) against potentially costly problems, like unexpected repairs on appliances or home systems, which are not covered by homeowner's insurance. Warranties are becoming more popular because they offer protection during the time immediately following the purchase of a home, a time when many people find themselves cash-strapped.

FHA - BASIC FINANCING QUESTIONS

33. What is a mortgage?

Generally speaking, a mortgage is a loan obtained to purchase real estate. The "mortgage" itself is a lien (a legal claim) on the home or property that secures the promise to pay the debt. All mortgages have two features in common: principal and interest.

34. What is a loan to value (LTV) how does it determine the size of my loan?

The loan to value ratio is the amount of money you borrow compared with the price or appraised value of the home you are purchasing. Each loan has a specific LTV limit. For example: With a 95% LTV loan on a home priced at $200,000, you could borrow up to $194,000 (97% of $200,000); and would have to pay $6,000 as a down payment.

The LTV ratio reflects the amount of equity borrowers have in their homes. The higher the LTV ratio the less cash homebuyers are required to pay out of their own funds. So, to protect lenders against potential loss in case of default, higher LTV loans (80% or more) usually require mortgage insurance policy.

35. What types of loans are available and what are the advantages of each?

Fixed Rate Mortgages: Payments remain the same for the life of the loan.

Types:

15-year

30-year

Advantages: Predictable -Housing cost remains unaffected by interest rate changes and inflation

Adjustable Rate Mortgages (ARMS): Payments increase or decrease on a regular schedule with changes in interest rates; increases subject to limits

Types:

Balloon Mortgage- Offers very low rates for an Initial period of time (usually 5, 7, or 10 years); when time has elapsed, the balance is due or refinanced (though not automatically)

Two-Step Mortgage- Interest rate adjusts only once and remains the same for the life of the loan

ARMS are linked to a specific index or margin

Advantages:

Generally offer lower initial interest rates

Monthly payments can be lower

May allow borrower to qualify for a larger loan amount

36. When do arms make sense?

An ARM may make sense if you are confident that your income will increase steadily over the years or if you anticipate a move in the near future and aren't concerned about potential increases in interest rates.

37. What are the advantages of 15- and 30-year loan terms?

30-Year:

In the first 23 years of the loan, more interest is paid off than principal, meaning larger tax deductions.

15-year:

Loan is usually made at a slightly lower interest rate. Equity is built faster because early years' payments pay more principal.

38. Can I pay off my loan ahead of schedule?

Yes. By sending in extra money each month or making an extra payment at the end of the year, you can accelerate the process of paying off the loan. When you send extra money, be sure to indicate that the excess payment is to be applied to the principal. Most lenders allow loan prepayment, though you may have to pay a prepayment penalty to do so. Ask your lender for details.

39. Are there special mortgages for first-time homebuyers?

Yes. Lenders now offer several affordable mortgage options which can help first-time homebuyers overcome obstacles that made purchasing a home difficult in the past. Lenders may now be able to help borrowers who don't have a lot of money saved for the down payment and closing costs, have no or a poor credit history, have quite a bit of long-term debt, or have experienced income irregularities.

40. How large of a down payment do I need?

There are mortgage options now available that only require a down payment of 3% or less of the purchase price. But the larger the down payment, the less you have to borrow and the more equity you'll have. Mortgages with less than a 20% down payment generally require a mortgage insurance policy to secure the loan. When considering the size of your down payment, consider that you'll also need money for closing costs, moving expenses and repairs and decorating.

41. What is included in a monthly mortgage payment?

The monthly mortgage payment mainly pays off principal and interest. But most lenders also include local real estate taxes, homeowner's insurance and mortgage insurance (if applicable).

42. What factors affect mortgage payments?

The amount of the down payment, the size of the mortgage loan, the interest rate, and the length of the repayment term and payment schedule will all affect the size of your mortgage payment.

43. How does the interest rate factor in securing a mortgage loan?

A lower interest rate allows you to borrow more money than a high rate with the some monthly payment. Interest rates can fluctuate as you shop for a loan, so ask-lenders if they offer a rate "lock-in" which guarantees a specific interest rate for a certain period of time. Remember that a lender must disclose the Annual Percentage Rate (APR) of a loan to you. The APR shows the cost of a mortgage loan by expressing it in terms of a yearly interest rate. The APR is generally higher than the note rate because it also includes the cost of points, mortgage insurance and other fees included in the loan, but mortgage payments are calculated on the note rate.

44. What happens if interest rates decrease and I have a fixed rate loan?

If interest rates drop significantly, you may want to refinance. Most experts agree that if you plan to be in your house for at least 18 months and you can get a rate 2% less than your current one, refinancing may be a good option. Refinancing may however, involve paying many of the same fees paid at the original closing, plus origination and application fees.

45. What are discount points?

Discount points allow you to lower your interest rate. They are essentially prepaid interest, with each point equaling 1% of the total loan amount. Generally, for each point paid on a 30-year mortgage, the interest rate is reduced by 1/8 (or.125) of a percentage point. When shopping for loans ask lenders for an interest rate with zero points and then see how much the rate decreases with each point paid. Discount points are smart if you plan to stay in a home for some time since they can lower the monthly loan payment. Points are tax deductible when you purchase a home and you may be able to negotiate for the seller to pay for some of them.

46. What is an escrow account? Do I need one?

Established by your lender, an escrow account is a place to set aside a portion of your monthly mortgage payment to cover annual charges for homeowner's insurance, mortgage insurance (if applicable) and property taxes. Escrow accounts are a good idea because they assure money will always be available for these payments. If you use an escrow account to pay property tax or homeowner's insurance, make sure you are not penalized for late payments since it is the lender's responsibility to make those payments.

FHA - FIRST STEP

Complete A Loan Application
You will need the following information or documents:

• Pay stubs covering the last 30 days
• W-2 forms for the past 2 years
• Information on debts
• Recent bank statements
• Tax returns for the past 2 years may be required
• Proof of any other income
• Address and description of the property you wish to buy

During the application process, the lender will order a report on your credit history and a professional appraisal of the property you want to purchase. The application process typically takes 30 to 45 days.

48. How do I choose the right lender for me?

Choose your lender carefully. Look for financial stability and a reputation for customer satisfaction. Check out our Customer Tesimonials. Be sure to choose a company that gives helpful advice and that makes you feel comfortable. A lender that has the authority to approve and process your loan locally is preferable, since it will be easier for you to monitor the status of your application and ask questions. It is also beneficial when the lender knows home values and conditions in the local area. Do research and ask family, friends and your real estate agent for recommendations.

49. How are pre-qualifying and pre-approval different?

Pre-qualification is an informal way to see how much you maybe able to borrow. You can be "pre-qualified" over the phone with no paperwork by telling a lender your income, your long-term debts and how large a down payment you can afford. Without any obligation, this helps you arrive at a ballpark figure of the amount you may have available to spend on a house.

Pre-approval is a lender's actual commitment to lend to you. It involves assembling the financial records mentioned in Question 47 (Without the property description and sales contract) and going through a preliminary approval process. Pre-approval gives you a definite idea of what you can afford and shows sellers that you are serious about buying.

50. How can I find out information about my credit history?

There are three major credit reporting companies: Equifax, Experian and Trans Union. Obtaining your credit report is as easy as calling and requesting one. Once you receive the report, it's important to verify its accuracy. Double check the "high credit limit," "total loan," and "past due" columns. It's a good idea to get copies from all three companies to assure there are no mistakes since any of the three could be providing a report to your lender. Fees, ranging from $5-$20, are usually charged to issue credit reports but some states permit citizens to acquire a free one. Contact the reporting companies at the numbers listed for more information.

CREDIT REPORTING COMPANIES:
Experian: 1-888-397-3742
Equifax: 1-800-997-2493
Trans Union: 1-800-888-4213

51. What if I find a mistake in my credit history?

Simple mistakes are easily corrected by writing to the reporting company, pointing out the error and providing proof of the mistake. You can also request to have your own comments added to explain problems. For example, if you made a payment late due to illness, explain that for the record. Lenders are usually understanding about legitimate problems.

52. What is a credit bureau score and how do lenders use them?

A credit bureau score is a number, based upon your credit history that represents the possibility that you will be unable to repay a loan. Lenders use it to determine your ability to qualify for a mortgage loan. The better the score, the better your chances are of getting a loan. Ask your lender for details.

53. How can I improve my score?

There are no easy ways to improve your credit score, but you can work to keep it acceptable by maintaining a good credit history. This means paying your bills on time and not overextending yourself by buying more than you can afford.

FHA - FINDING THE RIGHT LOAN

54. How do I choose the best loan program for me?

Your personal situation will determine the best kind of loan for you. By asking yourself a few questions, you can help narrow your search among the many options available and discover which loan suits you best.

• Do you expect your finances to change over the next few years?
• Are you planning to live in this home for a long period of time?
• Are you comfortable with the idea of a changing mortgage payment amount?
• Do you wish to be free of mortgage debt as your children approach college age or as you prepare for retirement?

Your lender can help you use your answers to questions such as these to decide which loan best fits your needs.

55. What is the best way to compare loan terms between lenders?

First, devise a checklist for the information from each lending institution. You should include the company's name and basic information, the type of mortgage, minimum down payment required, interest rate and points, closing costs, loan processing time and whether prepayment is allowed.

Speak with companies by phone or in person. Be sure to call every lender on the list the same day, as interest rates can fluctuate daily. In addition to doing your own research, your real estate agent may have access to a database of lender and mortgage options. Though your agent may primarily be affiliated with a particular lending institution, he or she may also be able to suggest a variety of different lender options to you.

56. Are there any costs or fees associated with the loan origination process?

When you turn in your application, you may be required to pay a loan application fee to cover the costs of underwriting the loan. This fee pays for the home appraisal, a copy of your credit report and any additional charges that may be necessary. The application fee is generally non-refundable.

57. What is RESPA?

RESPA stands for Real Estate Settlement Procedures Act. It requires lenders to disclose information to potential customers throughout the mortgage process, by doing so it protects borrowers from abuses by lending institutions. RESPA mandates that lenders fully inform borrowers about all closing costs, lender servicing and escrow account practices and business relationships between closing service providers and other parties to the transaction.

For more information on RESPA, visit http://www.fha.gov or call 1-(800) CALL- FHA for a local counseling referral

58. What is a good faith estimate and how does it help me?

It is an estimate that lists all fees paid before closing, all closing costs and any escrow costs you will encounter when purchasing a home. The lender must supply it within three business days of your application so that you can make accurate judgments when shopping for a loan.

59. Besides RESPA, does the lender have any additional responsibilities?

Lenders are not allowed to discriminate in any way against potential borrowers. If you believe a lender is refusing to provide his or her services to you on the basis of race, color, nationality, religion, sex, familial status, or disability, contact HUD's Office of Fair Housing at 1-800-669-9777 (or 1-800-927-9275 for the hearing impaired).

60. What responsibilities do I have during the lending process?

To ensure you won't fall victim to loan fraud, be sure to follow all of these steps as you apply for a loan:

• Be sure to read and understand everything before you sign.
• Refuse to sign any blank documents.
• Do not buy property for someone else.
• Do not overstate your income.
• Do not overstate how long you have been employed.
• Do not overstate your assets.
• Accurately report your debts.
• Do not change your income tax returns for any reason.
• Tell the whole truth about gifts.
• Do not list fake co-borrowers on your loan application.
• Be truthful about your credit problems, past and present.
• Be honest about your intention to occupy the house.
• Do not provide false supporting documents.

FHA - CLOSING

61. What happens after I've applied for my loan?

It usually takes a lender between 1-4 weeks to complete the evaluation of your application. Often a lender will ask for more information once the application has been submitted. The sooner you can provide the information the faster your application will be processed. Once all the information has been verified the lender will call you to let you know the outcome of your application. If the loan is approved, a closing date is set up and the lender will review the closing with you. And after closing, you'll be able to move into your new home.

62. What should I look out for during the final walk-through?

The walk-through prior to settlement will likely be the first opportunity to examine the house without furniture, giving you a clear view of everything. Check the walls and ceilings carefully, as well as any work the seller agreed to do in response to the inspection. Any problems discovered previously that you find uncorrected should be brought up prior to closing. It is the seller's responsibility to fix them.

63. What are pre-paid expenses and closing costs?

There may be closing cost customary or unique to a certain locality, but closing cost is usually made up of the following:

• Attorney's or escrow fees (Yours and your lender's if applicable)
• Property taxes (to cover tax period to date)
• Interest (paid from date of closing to 30 days before first monthly payment)
• Loan Origination fee (covers lenders administrative cost)
• Recording fees
• Survey fee
• First premium of mortgage insurance (if applicable)
• Title Insurance (yours and lender's)
• Loan discount points
• First payment to escrow account for future real estate taxes and insurance
• Paid receipt for homeowner's insurance policy (and fire and flood insurance if applicable)
• Any documentation preparation fees
• Appraisal fee
• Credit Report

64. What can I expect to happen on closing day?

You will present your paid homeowner's insurance policy or a binder and receipt showing that the premium has been paid. The closing agent will then list the money you owe the seller (remainder of down payment, prepaid taxes, etc.) and then the money the seller owes you (unpaid taxes and prepaid rent, if applicable). The seller will provide proofs of any inspection, warranties, etc.

Once you're sure you understand all of the documentation, you'll sign the mortgage, agreeing that if you do not make payments the lender is entitled to sell your property and apply the sale price against the amount you owe plus expenses. You'll also sign a mortgage note, promising to repay the loan. The seller will give you the title to the house in the form of a signed deed.

You'll pay the lender's agent all closing costs and, in turn, he or she will provide you with a settlement statement of all the items for which you have paid. The deed and mortgage will then be recorded in the state Registry of Deeds and you will be a homeowner.

65. What do I get at closing?

Settlement Statement, HUD-1 Form is given at or before closing if live closing and within 48 hours after closing in an escrow state. If you want a copy prior to closing for review, you must request it from the closing agent.
Copy of Truth-in-Lending Statement
Copy of Mortgage Note
Copy of Mortgage or Deed of Trust
Keys to your new home

FHA - HOW CAN HUD AND THE FHA HELP ME BECOME A HOMEOWNER?

What is the U.S. Department of Housing and Urban Development?

Established in 1965, the U.S. Department of Housing and Urban Development (HUD) develops national policies and programs to address housing needs in the United States. One of HUD's primary missions is to create a suitable living environment for all eligible individuals by developing and improving the country's communities and enforcing fair housing laws.

67. How does HUD help homebuyers and homeowners?

HUD helps people by administering a variety of programs that develop and support affordable housing. Specifically, HUD plays a large role in homeownership by making loans available for lower and moderate-income families through its FHA mortgage insurance program and its HUD homes program. HUD owns homes in many communities throughout the United States and offers them for sale at attractive prices and economical terms. HUD also seeks to protect consumers through education, Fair Housing Laws and housing rehabilitation initiatives.

68. What is the Federal Housing Administration (FHA)?

An agency within HUD, the Federal Housing Administration (FHA) was established in 1934 to advance opportunities for eligible individuals to own homes. By providing private lenders with mortgage insurance, the FHA gives them the security they need to lend to first-time buyers who might not be able to qualify for conventional loans. The FHA has helped more than 34 million eligible individuals buy a home.

69. How can the FHA assist me in buying a home?

The FHA works to make homeownership a possibility for more eligible individuals. With the FHA, you don't need perfect credit or a high-paying job to qualify for a loan. In fact, the FHA down payment could be as little as a few months' rent and your monthly payments may not be much more than your monthly rent.

70. How is the FHA funded?

Lender claims paid by the FHA mortgage insurance program are drawn from the Mutual Mortgage Insurance fund. This fund is made up of premiums paid by FHA-insured loan borrowers. No tax dollars are used to fund the program.

71. Who can qualify for FHA loans?

Anyone who meets the credit requirements can afford the mortgage payments and cash investment and who plans to use the mortgaged property as a primary residence may apply for an FHA-insured loan.

72. What is the FHA loan limit?

FHA loan limits vary throughout the country, depending on local housing costs. Loan limits determine the maximum amount you can borrow to purchase a home. The loan maximums for multi-unit homes are higher than those for single-units and also vary by area.

Because these maximums are linked to the conforming loan limit and average area home prices, FHA loan limits are periodically subject to change. Ask your lender for details and confirmation of current limits. You can also visit www.fha.gov for more information.

73. What are the steps involved in the FHA loan process?

With the exception of a few additional forms, the FHA loan application process is similar to that of a conventional loan (see Question 47). With new automation measures, FHA loans may be originated more quickly than before. And, if you don't prefer a face-to-face meeting, you can apply for an FHA loan via mail, telephone, the Internet, or video conference.

74. How much income do I need to have to qualify for an FHA loan?

There is no minimum income requirement. But you must prove steady income for at least two years and demonstrate that you've consistently paid your bills on time.

75. What qualifies as an income source for the FHA?

Seasonal pay, child support, retirement pension payments, unemployment compensation, VA benefits, military pay, Social Security income, alimony and rent paid by family may qualify as income sources. Part-time pay, overtime and bonus pay may also count as long as they are steady. Special savings plans-such as those set up by a church or community association qualify. Income type is not as important as income steadiness with the FHA.

76. Can I carry debt and still qualify for FHA loans?

Yes. Short-term debt doesn't count as long as it can be paid off within 10 months. And some regular expenses, like child care costs, are not considered debt. Talk to your lender or real estate agent about meeting the FHA debt-to-income ratio.

77. What is the debt-to-income ratio for FHA loans?

The FHA allows you to use 31% of your income towards housing costs and 43% towards housing expenses and other long-term debt. Should your ratios exceed this, please consult a lender in your area.

78. Can I exceed this ratio?

You may qualify to exceed if you have:

• A large down payment
• A demonstrated ability to pay more toward your housing expenses
• Substantial cash reserves
• Net worth enough to repay the mortgage regardless of income
• Evidence of acceptable credit history or limited credit use
• Less-than-maximum mortgage terms
• Funds provided by an organization
• A decrease in monthly housing expenses

79. How large a down payment do I need with an FHA loan?

You must have a down payment of at least 3.5% of the purchase price of the home. If you are purchasing a HUD home, HUD may pay up to 3% of the home sales price for closing costs that are reasonable and customary for the area.

80. What can I use to pay the down payment and closing costs of an FHA loan?

Besides your own funds, you may use cash gifts or money from a private savings club. If you are doing a lease purchase, paying extra rent to the seller may also be considered the same as accumulating cash.

81. How does my credit history impact my ability to qualify?

The FHA is generally more flexible than conventional lenders in its qualifying guidelines. In fact, the FHA allows you to re-establish credit if:

• Two years have passed since a bankruptcy has been discharged
• All judgments have or will be paid
• Any existing tax liens have or will be satisfied or appropriate arrangements have been made to establish a repayment plan with the IRS or state Department of Revenue and evidence of history of payments being made
• Three years have passed since a foreclosure or a deed-in-lieu has been resolved

82. Can I qualify for an FHA loan without a credit history?

Yes. If you prefer to pay debts in cash or are too young to have established credit, there are other ways to prove your eligibility. Talk to your lender for details.

83. What types of closing costs are associated with FHA-insured loans?

Except for the addition of an FHA mortgage insurance premium, FHA closing costs are similar to those of a conventional loan outlined in Question 63. The FHA requires a single, upfront mortgage insurance premium equal to 1% or current rate in effect at time of closing. After closing, you will then be responsible for an annual premium which is paid monthly for a minimum of 5 years.

84. Can I roll closing costs into my FHA loan?

It may be possible to finance a portion of the closing cost. Ask your lender for details.

85. Are FHA loans assumable?

Yes. You can assume an existing FHA-insured loan, or, if you are the one deciding to sell, allow a buyer to assume yours. Assuming a loan can be very beneficial, since the process is streamlined and less expensive compared to that for a new loan. Also, assuming a loan can often result in a lower interest rate. The application process consists basically of a credit check and no property appraisal is required. And you must demonstrate that you have enough income to support the mortgage loan. In this way, qualifying to assume a loan is similar to the qualification requirements for a new one.

86. What should I do if I can't make a payment on loan?

Call or write to your lender as soon as possible. Clearly explain the situation and be prepared to provide him or her with financial information.

87. Are there any options if I fall behind on my loan payments?

Yes. Talk to your lender or a HUD-approved counseling agency for details. Listed below are a few options that may help you get back on track.

For FHA loans:

Keep living in your home to qualify for assistance.

Contact a HUD-approved housing counseling agency (1-800-569-4287 or TDD: 1-800-483-2209) and cooperate with the counselor/lender trying to help you.

HUD has a number of special loss mitigation programs available to help you:

• Special Forbearance - Your lender will arrange for a revised repayment plan which may include temporary reduction or suspension of payments; you can qualify by having an involuntary reduction in your income or increase in living expenses.
• Mortgage Modification - Allows refinance debt and/or extend the term of the mortgage loan which may reduce your monthly payments; you can qualify if you have recovered from financial problems, but net income is less than before.
• Partial Claim - Your lender maybe able to help you obtain an interest-free loan from HUD to bring your mortgage current.
• Pre-foreclosure Sale - Allows you to sell your property and pay off your mortgage loan and to avoid foreclosure.
• Deed-in lieu of Foreclosure - Lets you voluntarily "give back" your property to the lender; it won't save your house but will help you avoid the costs, time and effort of the foreclosure process.

If you are having difficulty with an uncooperative lender or feel your loan servicer is not providing you with the most effective loss mitigation options, call the FHA Loss Mitigation Center at 1-888-297-8685 for additional help.

For Conventional Loans:

Talk to your lender about specific loss mitigation options. Work directly with him or her to request a "workout packet." A secondary lender, like Fannie Mae or Freddie Mac, may have purchased your loan. Your lender can follow the appropriate guidelines set by Fannie or Freddie to determine the best option for your situation.

Fannie Mae does not deal directly with the borrower. They work with the lender to determine the loss mitigation program that best fits your needs.

Freddie Mac, like Fannie Mae, will usually only work with the loan servicer.

However, if you encounter problems with your lender during the loss mitigation process, you can call customer service for help at 1-800-FREDDIE (1-800-373-3343).

In any loss mitigation situation, it is important to remember a few helpful hints:

Explore every reasonable alternative to avoid losing your home.
"Be aware of scams"

For example, watch out for:

• Equity skimming: a buyer offers to repay the mortgage or sell the property if you sign over the deed and move out.
• Phony counseling agencies: offer counseling for a fee when it is often given at no charge.

Don't sign anything you don't understand.

What is mortgage insurance (MIP)?

Mortgage insurance is a policy that protects lenders against some or most of the losses that result from defaults on home mortgages. It is required primarily for borrowers making a down payment of less than 20%.

89. How does mortgage insurance work? Is it like home or auto insurance?

Like home or auto insurance, mortgage insurance requires payment of a premium; it is for protection against loss and is used in the event of mortgage loan default. If a borrower can't repay an insured mortgage loan as agreed, the lender may foreclose on the property and file a claim with the mortgage insurer for some or most of the total losses.

90. What is PMI?

PMI stands for Private Mortgage Insurance or Insurer. These are privately-owned companies that provide mortgage insurance. They offer both standard and special affordable programs for borrowers. These companies provide guidelines to lenders that detail the types of loans they will insure. Lenders use these guidelines to determine borrower eligibility. PMI's usually have stricter qualifying ratios and larger down payment requirements than the FHA, but their premiums are often lower and they insure loans that exceed the FHA limit

FHA - PRODUCTS

What is a 203(b) loan?

This is the most commonly used FHA program. It offers a low down payment, flexible qualifying guidelines and a maximum loan amount.

92. What is a 203(k) rehabilitation loan?

A 203(K) loan enables the homebuyer to finance both the purchase and rehabilitation of a home through a single mortgage. A portion of the loan is used to pay off the seller's existing mortgage and the remainder is placed in an escrow account and released as rehabilitation is completed.

Basic guidelines for 203(k) loans are as follows:

• The home must be at least one year old
• The total property value including the cost of repairs must fall within the FHA maximum mortgage limit
• The 203(k) loan must follow most of the 203(b) eligibility requirements.
• Streamline 203(K) is available for simple repairs

Visit www.fha.gov for more information.

93. What is an Energy Efficient Mortgage (EEM)?

The Energy Efficient Mortgage allows a homebuyer to save future money on utility bills. This is done by financing the cost of energy efficient improvements to a new or existing home as part of an FHA-insured home purchase. The EEM can be used with both 203(b) and 203(k) loans. Basic guidelines for EEM's are as follows:

• The cost of energy saving improvements must be determined by a Home Energy Rating System or by an energy consultant. This cost must be less than the anticipated savings from the improvements.
• One and two-unit new or existing homes are eligible; condos are not.
• The improvements financed may be up to 5% of property value or $4,000, whichever is greater. The total must fall within the FHA loan limit.

94. What other loan products or programs does the FHA offer?

The FHA also insures loans for the purchase or rehabilitation of manufactured housing, condominiums and cooperatives. Insurance for Adjustable Rate Mortgages (ARMS) are also available from the FHA. In addition, FHA has special programs for disaster victims along with reverse mortgages for seniors. Ask your lender for details.

95. What is a Title I loan?

Given by a lender and insured by the FHA, a Title I loan is used to make non-luxury renovations and repairs to a home. It offers a market interest rate and repayment schedule. Loans are limited to between $5,000 and 20,000. If the loan amount is under 7,500, no lien is required against your home. Ask your lender for details.

96. Can I purchase a mobile home with an FHA program?

Title 1 loans may be used to finance manufactured homes that are placed on a rental site in a manufactured home park, or on an individual home site owned or leased by the borrower. Visit the FHA website www.fha.gov for more information.

97. What is a HUD home?

A HUD home is a 1-4 unit residential property acquired by HUD as a result of a foreclosure action on an FHA-insured mortgage. HUD becomes the property owner and offers it for sale to recover the loss on the foreclosure claim. For more information on purchasing a HUD home, consult with your real estate broker or visit FHA's website at www.fha.gov.

98. How can I obtain an FHA-insured loan?

Contact an FHA-approved lender such as a participating mortgage company, bank, savings and loan association or thrift. For more information on the FHA and how you can obtain an FHA loan, visit the web site at www.fha.gov or call the FHA Resource Center at (800) CALL - FHA (800-225-5342).

99. How can I contact the FHA?

Visit the web site at www.fha.gov or telephone the FHA Resource Center at (800) CALL - FHA (800-225-5342

100. How can I contact HUD?

Visit the website at www.hud.gov.

How can I buy a HUD Home?

Anyone can purchase a HUD Home as long as you have the cash to purchase the home or you can qualify for a loan to purchase it. HUD Homes are sold through a bid process and you will need a HUD-approved real estate agent to assist you with that bid process. HUD will even pay that real estate agent's fee.


HUD Homes are sold "as-is," without warranty. That means that HUD will not pay to correct any problems. But even if a HUD Home needs fixing up - and not all of them do - it can be a real bargain! For example, HUD's asking price on the home will reflect the fact that the buyer will have to invest money to make improvements. HUD might offer special incentives such as an allowance to upgrade the property, a moving expense allowance, or a bonus for closing the sale early. And keep in mind that on most sales, the buyer can request HUD to pay all or a portion of the financing and closing costs. Your real estate agent will have details. We encourage you to get the home professionally inspected before you make an offer so you will know what repairs you may have to make BEFORE you submit your bid.

Start your HUD Home buying process by finding a participating real estate agent. Your real estate agent must submit your bid for you. Normally, HUD Homes are sold in an "Offer Period." At the end of the Offer Period, all offers are opened and, basically, the highest reasonable bid is accepted. If the home isn't sold in the initial Offer Period, you can submit a bid until the home is sold. Bids can be submitted any day of the week, including weekends and holidays. They will be opened the next business day. If your bid is acceptable to HUD, your real estate agent will be notified, usually within 48 hours. You'll be given a settlement date, normally within 30-60 days, by which you need to arrange financing and close the sale.


How can FHA help me buy a home?

Easier to Qualify: Because FHA insures your mortgage, lenders may be more willing to give you loan terms that make it easier for you to qualify.

• Less than Perfect Credit: You don't have to have a perfect credit score to get an FHA mortgage. In fact, even if you have had credit problems, such as a bankruptcy, it's easier for you to qualify for an FHA loan than a conventional loan.
• Low Down Payment: FHA loans have a low 3% downpayment and that money can come from a family member, employer or charitable organization as a gift. Other loan programs don't allow this.
• Costs Less: FHA loans have competitive interest rates because the Federal government insures the loans. Always compare an FHA loan with other loan types.
• Helps You Keep Your Home: The FHA has been around since 1934 and will continue to be here to protect you. Should you encounter hard times after buying your home, FHA has many options to help you keep you in your home and avoid foreclosure.

FHA does not provide direct financing nor does it set the interest rates on the mortgages it insures. For the best interest rate and terms on a mortgage, you should compare mortgages from several different lenders. In order to initiate the loan application process, please contact an FHA approved lender.

An FHA insured mortgage may be used to purchase or refinance a new or existing 1-4 family home, a condominium unit or a manufactured housing unit (provided the manufactured housing unit is on a permanent foundation).


What are the advantages of refinancing to a fixed rate FHA mortgage?

There are significant advantages to refinancing to an FHA mortgage with a fixed interest rate, particularly if you currently have a higher cost mortgage or have a mortgage that has an adjustable or a variable interest rate, optional payments or interest only payments that will increase in the near future. Borrowers with adjustable or variable interest rate mortgages or interest only payment mortgages often encounter much higher monthly payments ("payment shock") after having the mortgage for just a few years.

FHA fixed interest rate mortgages cost less. FHA loans have competitive interest rates because the Federal government insures the loan. A fixed interest rate FHA loan will have a low interest rate compared to a subprime loan and the FHA loan will have fixed payments of principal and interest compared to an adjustable rate or variable interest rate mortgage or a mortgage with optional or variable payments.

You don't have to have perfect credit to get an FHA fixed rate mortgage. Even if you have had credit problems, such as a bankruptcy, you may still qualify for an FHA mortgage. Should you encounter hard times after refinancing your home, FHA has programs to help you keep you in your home and avoid foreclosure.

FHA does not provide direct financing nor does it set the interest rates on the mortgages it insures. For the best interest rate and terms on a mortgage, you should compare mortgages from several different lenders.

An FHA fixed interest rate mortgage may be used to refinance a new or existing 1-4 family home, a condominium unit or a manufactured housing unit (provided the manufactured housing unit is on a permanent foundation).

What are the basic eligibility requirements for FHA financing?

FHA insures mortgages made by approved lenders to individuals and non-profit and government agencies that are approved to participate in HUD's programs; HUD does not loan money to homebuyers.

Generally, to be eligible for an FHA loan, you must have a valid social security number and have lawful residency in the United States and be of a legal age to sign on a mortgage in your state. Lenders will verify income, assets, liabilities, and credit history for all parties on the loan. With an FHA loan, you cannot take an ownership interest in a property without qualifying for the loan.

FHA's mortgage programs do not typically have maximum income limits for qualifying, although you must have sufficient income to qualify for the mortgage payment and other debts. Income limits may be present when qualifying for down payment assistance or other secondary financing programs (including those funded by HUD) that may be used in conjunction with an FHA loan.

FHA does not have minimum credit score requirements, although past credit performance serves as the most useful guide in determining a borrower's attitude toward credit obligations and predicting a borrower's future actions. Using FHA's guidelines, lenders will make a credit determination based on the merits of each case. To find out if you qualify, and how much you can borrow based on your income and debts, you should contact a HUD-approved lender.

What is the FHA Secure refinance program?

Under the new "FHASecure" refinance program, FHA will allow families with acceptable credit histories who had been making timely mortgage payments before the interest rate on their adjustable rate mortgages reset-but are now in default-to qualify for refinancing to an FHA mortgage.

The mortgage being refinanced must be a non-FHA Adjustable Rate Mortgage (ARM) and the interest rate has reset.

• The homeowner is now delinquent in making payments on the mortgage after the reset.
• The homeowner's payment history must show that, prior to the reset of the interest rate on the mortgage, the homeowner was current in making the monthly mortgage payments, i.e., the homeowner's mortgage payment history during the 6 months prior to the interest rate reset showed no instances of making mortgage payments outside the month due.
• The homeowner has sufficient income to qualify for an FHA mortgage.

If there is sufficient equity in the home, FHA will allow missed mortgage payments to be included in the FHA refinance mortgage, if the arrearages arose after the interest rate reset or the homeowner may be able to use a second mortgage to finance the missed payments.

Does FHA have a refinance program that will help borrowers who have high cost adjustable rate mortgages where the interest rate has recently reset?

Under the new "FHASecure" program, FHA will allow families with acceptable credit histories who had been making timely mortgage payments before the interest rate on their adjustable rate mortgages reset-but are now in default-to qualify for refinancing to an FHA mortgage.

The FHASecure program will operate under the same safe guidelines as FHA's existing mortgage insurance program. Eligible homeowners will be required to meet strict underwriting guidelines and pay a mortgage insurance premium, which offsets the risk to FHA's insurance fund.

Eligibility Highlights of the FHASecure Initiative:

• The mortgage being refinanced must be a non-FHA Adjustable Rate Mortgage (ARM) and the interest rate has reset.
• The borrower must be delinquent on his mortgage payments after the reset.
• The borrower's payment history on the non-FHA ARM must show that, prior to the reset of the interest rate on the mortgage, the borrower was current in making the monthly mortgage payments, i.e., the homeowners mortgage payment history during the 6 months prior to the reset showed no instances of making mortgage payments outside the month due.
• If there is sufficient equity in the home, FHA will allow missed mortgage payments to be included in the FHA refinance mortgage, if the arrearages arose after the reset.
• Under certain conditions FHA will insure first mortgages where (1) the existing note holder writes off the amount of indebtedness that cannot be refinanced into the FHA insured mortgage; or (2) either the FHA-approved lender making the new FHA mortgage or the existing note holder may take back a second lien that includes closing costs, arrearages or previous secondary financing if the indebtedness exceeds FHA's maximum LTV ratio and maximum loan limit.
• Lenders must determine, as part of the underwriting process, that the reset of the non-FHA ARM monthly payments caused the borrower's inability to make the monthly payments and that the borrower has sufficient income and resources to make the monthly payments under the new FHA refinance mortgage.
• If the new FHA refinance mortgage is not enough to pay off the existing first lien, closing costs and arrearages, the lender may execute a second lien at closing to pay the difference. The combined amount of the FHASecure first mortgage and any subordinate non-FHA insured lien may exceed the applicable FHA loan-to-value ratio and geographical maximum loan limit. If payments on the second are required, they must be included in qualifying the borrower. If payments are deferred, they must be so for no less than 36 months to not be considered in the qualifying ratios. Borrowers need not yet have missed any mortgage payments to be eligible for this type of subordinate financing.

What is the FHA Secure refinance program?

How can FHA help me if I am behind in my mortgage payments?

FHA insures your mortgage; therefore, your lender has to follow FHA servicing guidelines and regulations. You should first contact your lender's Loss Mitigation Division to seek a workout solution, but if your lender is non-responsive, then you will need to contact FHA's National Servicing Center. All requests for information or clarification of policy on servicing related issues should be directed to the FHA National Servicing Center (NSC).

What foreclosure prevention options are available on non-FHA insured mortgages?

Contact your lender if you are behind in your mortgage payments.

A good deal of information which HUD provides may apply to individuals that have a VA or conventional loan who are in danger of losing their homes. Visit http://www.hud.gov/foreclosure/index.cfm for more information.

Contact a HUD-approved housing counseling agency and they will help you assess your financial situation, determine what options are available to you, and help you negotiate with your lender.

Who is eligible for an FHA reverse mortgage?

To be eligible for a federally insured Home Equity Conversion Mortgage (HECM), or reverse mortgage, all borrowers must be at least 62 years or older, own and occupy the property, and should have either no mortgage or one small enough to be paid off with the proceeds of the HECM loan. Life estates and living trusts may also qualify. All borrowers must also have attended counseling from a HUD approved counseling agency.

The property may be an existing single family home, condominium unit, a manufactured home, or a 2-4 family residential unit as long as the borrower occupies one of the units. Newly constructed residences are also eligible provided that a certificate of occupancy (or equivalent) has been issued for the new home by the local authority, the new home is 100% complete, and the owner is occupying the new home. Both existing and new units must meet HUD eligibility standards.

When can I stop paying my monthly FHA mortgage insurance premium?

Termination of the FHA monthly mortgage insurance premium (MIP) is based on several factors including: the loan term, loan-to-value (LTV) at loan origination and regulations in place when the loan is closed. Generally, loans closed prior to January 1, 2001 will not be eligible for termination of MIP, which is collected as part of your monthly mortgage payment.

For loans closed on or after January 1, 2001, FHA's MIP will be automatically terminated under the following conditions:

• For mortgages with terms more than 15 years, the MIP will be terminated when the Loan to Value (LTV) ratio reaches 78%, provided the
  borrower has paid the MIP for at least five years. If the LTV reaches 78% and the borrower has not paid MIP for at least five years then the borrower must continue to pay MIP until the five year requirement is met.
• For mortgages with terms 15 years and less and with LTV ratios of 90% and greater, the MIP will be terminated when the LTV ratio reaches 78%, irrespective of the length of time the borrower has paid the MIP.
• Mortgages with terms 15 years and less and with LTV ratios of 89.99% and less will not be charged MIP.
  

Although the MIP will be terminated as described, the FHA insurance will remain in force for the loan's full term. This MIP termination provision only applies to loans where the borrower also paid an Up-front MIP at closing.

FHA will determine when a borrower has reached the 78% LTV ratio based on the lesser of the sales price or appraised value at loan origination. For example, if the lesser of the sales price or the appraised value at origination was $100,000, when the loan amount reaches $78,000, HUD will no longer collect MIP on the loan.

FHA's regulations do not permit a borrower to submit a new appraisal to reach the threshold for termination of MIP. Termination of MIP will normally be based on the scheduled amortization of the loan. However, borrowers may reach the 78% threshold in advance of the scheduled amortization because of prepayments of loan principal. A borrower whose loan reaches the 78% LTV threshold sooner than projected because of prepayment may have the MIP terminated (but not sooner than five years from loan closing for loans with terms greater than 15 years) if the borrower has not been more than 30 days delinquent in paying the mortgage payments during the previous 12 months. The borrower must submit a termination request to the lender and the lender must provide the borrower's request and supporting documentation with respect to the mortgage payments during the last 12 months to FHA for such termination.

NOTE: This information was found on the official Federal Housing Authority website. For more information, visit www.fha.gov.

FHA's DISCLAIMER: All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.

NOTE: This information was found on the official Federal Housing Authority website. For more information, visit www.fha.gov.

FHA's DISCLAIMER: All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.