This guide, created by the U.S. Department of Housing and Urban Development, explains mortgage options, fees, payments, insurance programs and other helpful information on government-sponsored home ownership programs.
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Scheduled increases in monthly payments are applied directly to the principal, allowing a shorter term than a GPM or a level payment mortgage. The total cost of your mortgage will also be reduced because you pay off the balance sooner.
The length of the mortgage varies according to the plan you choose.
Section 251 Adjustable Rate Mortgage. An Adjustable Rate Mortgage differs from a fixed rate mortgage because the interest rate and monthly payments may increase or decrease during the life of the loan.
The initial interest rate on your mortgage will remain in effect from 12 to 18 months. Your mortgage documents will indicate the date when the first change in your interest rate will occur. Thereafter, your monthly payments will increase if the one-year Treasury Constant Maturities index goes up and will decrease if this Index falls.
Your interest rate cannot increase or decrease more than one percent in any one year. Over the life of the loan, the interest rate may not increase or decrease more than five percent from the initial interest rate.
Your lender must explain how the Adjustable Rate Mortgage is calculated when you apply for your loan. Your lender must inform you at least 25 days in advance if there is an adjustment to your monthly payment.
Other FHA Mortgage Insurance Programs Although the following FHA mortgage insurance programs are still active, they are not used as much as the six major FHA programs, because they were designed to serve certain specific purposes.
Section 203(h) Mortgage Insurance for Disaster Victims. You may use this program to finance the purchase of a home if your home was damaged or destroyed because of a major disaster. The President of the United States must designate the area a major disaster area. The loan may be used to purchase an existing home or a newly built home.
Disaster victims are not required to meet minimum investment requirements, and a down payment is not required.
Section 203(i) Mortgage Insurance for Outlying Area Properties. You may use Section 203(i) to purchase a home in a rural area. You may also use it to purchase a new farm house on 2.5 or more acres of land adjacent to an all-weather road.
Section 220 Urban Renewal Mortgage Insurance. This program is used in conjunction with local governments to rehabilitate existing dwellings for up to 11 families or to build new dwellings in redevelopment areas where concentrated housing, physical development, and public service activities are being carried out. If the building houses more than four families, the mortgage limit increases $9,165 for each additional unit.
Section 220(h) Insured Improvement Loans in Urban Areas These loans are used to finance alterations, repairs, or improvements to existing dwellings housing up to 11 families in a redevelopment area as defined in Section 220. The mortgage limit is the lesser of: • HUD's estimate of the cost of improvements; • $40,000; or • $12,000 for each family unit ($17,400 in high cost areas).
Section 221(d)(2) Home Mortgage Insurance for Low and Moderate Income Families. This program may be used by low- to moderate-income families to finance the purchase of a home. It may also be used by families displaced by urban renewal, code enforcement, condemnation, etc., or as a result of the President declaring an area a major disaster. The mortgage limit for a one-family unit is $31,000. This amount may be increased up to $36,000 in high cost areas determined by the Department.
Section 223(e) Miscellaneous Housing Insurance. You may use Section 223(e) to purchase a property in an older, declining urban area where normal requirements for mortgage insurance cannot be met. Only HUD can determine whether a property is eligible for Section 223(e) mortgage insurance. This program is intended to supplement other HUD mortgage insurance programs.
Section 237 Mortgage Insurance for Special Credit Risks. Low- and moderate-income families who are unable to meet the normal underwriting standards of HUD's other single family programs because of their credit history may use Section 237 to finance the purchase of new, existing, or substantially rehabilitated single-family homes or condominiums. To qualify for a Section 237 mortgage, you must obtain counseling assistance from a HUD-approved counseling agency. These agencies provide budget, debt-management, and related counseling services to families as needed.
Section 238(c) Mortgage Insurance in Military Impacted Areas. You may use Section 238(c) to finance the repair, rehabilitation, or purchase of a home near any military installation in a federally-impacted area. The Secretary of Defense must certify the need for additional housing in the area.
Section 240 Purchase of Fee-Simple Title from Lessors. You may use Section 240 to finance the purchase of fee-simple title if your home is on leased land. The maximum mortgage amount is the lesser of: • $10,000 per family unit ($30,000 if the property is in Hawaii); • The cost of purchasing the fee simple title; or • An amount that does not exceed the maximum mortgage insurable under Section 203(b).
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