There are four major FHA programs of which you should be aware.
1. 203(b). This is the original program, which has been used since the Great Depression. It is aimed at borrowers who would not qualify for conventional financing because of credit, income, or cash requirements. The borrower must intend to use the home as his or her primary residence. It requires a 3% down payment and allows closing costs and mortgage insurance to be financed. It covers one to four-family homes.
2. 203(k). This program is for the rehabilitation of property. The main goal is to revitalize neighborhoods that have properties in need of rehabilitation. It is very broad, covering property that has one to four family units, condominiums, and even property that is partly commercial. It also covers complete demolition and rebuilding, as well as moving a building onto the land after demolition. (There are requirements for keeping the original foundation.) The difference from conventional financing is that one loan can cover the purchase price and rehabilitation costs, based on the estimated value of the property after the work is completed. As with all FHA loans, qualifying is easier than for a conventional loan.
3. 234(c). The purpose of this program is to help tenants buy units when their apartments are converted to condominiums. It can also be used by developers to convert apartments to condominiums. Qualifications similar to 203(b) are required.
4. 251. This is the FHA adjustable rate mortgage program. It can be used in conjunction with the three programs previously described. The index used is the Constant Maturity Treasury (CMT). The adjustment is yearly with a 1% cap, and the lifetime cap is 5%.
There are several other programs designed to help specific groups, such as loans for Native Americans, the Good Neighbor Program designed to help people with certain jobs (such as teachers, police officers, and firefighters), graduated payment mortgages, disaster relief loans, the Home Equity Conversion Mortgage (reverse Mortgage for Seniors), etc.
Fortunately, FHA has an excellent website that not only explains each loan, but also helps you find an approved lender in your area. Visit the site at www.fha.gov or type “FHA” into any search engine. For an even broader site, the U.S. Department of Housing and Urban Development (HUD) can be accessed at www.hud.gov or by typing “HUD” into any search engine. This will also give you access to HUD homes for sale.
Note: You can also type a category such as “teacher’s mortgages” or “mortgages for police” into a search engine. The special loans and grants will be described on websites you may find. Read the information carefully. Some of the websites represent lenders who just make ordinary loans and want to make you believe that they are offering you something special. Never pay for a list of these programs.
Another important section of the HUD website gives advice if you are facing foreclosure. FHA can provide counseling as well as possible help in refinancing. I say “possible” because FHA has been given expanded authority to help homeowners facing foreclosure. The program or programs may be clearer by the time you read this.