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The Federal Housing Administration (FHA) was created in 1934 to insure mortgage loans on residential property and, by thus protecting lenders against loss, encourages the use of long-term mortgages with high loan-to-value ratios. The Department of Housing and Urban Development (HUD) oversees home ownership, low income housing assistance, fair housing laws, homelessness, aid for distressed neighborhoods, and housing development programs. HUD administers RESPA and FHA. Remember FHA does not make home loans, however insures against any losses a mortgage lender will incur in case of default. In addition, FHA promotes low to moderate income earners to purchase or refinance the home with extremely favorable terms without any pre-payment penalties or exotic loan products.
Some other highlights of FHA programs are:
- Minimal down payment requirements needed when purchasing (3% of the sales price is typically needed)
- No reserves are required for qualifying purposes.
- Seller can credit up to 6% of sales price towards buyers closing costs.
- No minimum FICO credit score or credit score requirements (alternative trade lines are used to qualify)
- Bankruptcies must be seasoned for a minimum of two years
- Prior foreclosures must be seasoned for a minimum of three years
- Less than two years work employment is allowed.
- Self-Employed borrowers are allowed
- Property must be owner occupied
- Property types allowed are one to four units residential
- Loan amounts ranging from $410K for a single family home to $788K for a 4 unit property (depending upon the county)
FHA Loans for Association Controlled Properties (Condominiums and/or PUDs)
FHA Condominium Loans are for anyone living or interested in purchasing in a condominium building. Condominium ownership separate owners of individual units, however allows for joint ownership of the building’s common areas and facilities. Insurance for this type of housing is provided through FHA Section 234(c). This FHA insurance is very important for low and moderate-income renters who wish to avoid the risk of being displaced when their apartments are converted into condominiums.
FHA Condominium Project Facts:
- Condominium project must contain at least 4 units.
- Condo project, including common facilities should be completed before any mortgage is insured.
- At least 51% of the units in a project must be owner occupied or sold to owners who intend to occupy the unit (spot loans).
- At least 80% of the units on which there are insured FHA mortgages must be owner occupied (approved projects).
- At least 70% of total units sold before endorsement of any unit mortgage (newly constructed units and rental conversions).
*Please consult an American Street Mortgage Planner for further details.
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