4 FHA loan programs: Which loan program is right for you?

House with a sold signCongress created the Federal Housing Administration (FHA) in 1934 during the Great Depression. Federally insured loan programs that reduce lender risk make it easier for borrowers to qualify for home loans. The home ownership rate in the U.S. steadily climbed, reaching an all-time high of 69.2% in 2004.

The Federal Housing Administration does not provide direct loans to home buyers, but rather backs lenders in the case of a loan default. To acquire lending insurance, the lender must process the transaction in accordance with FHA standards.

203(b) Loan Program

The 203(b) FHA home loan is the typical mortgage for most home buyers. The required down payment is just 3.5 percent, and the borrower does not have to be a first-time home buyer. With seller-paid closing costs, the borrower can lower the closing requirement. The seller-paid assistance is limited to 6% of the purchase price.

Another benefit of the FHA loan is the minimum credit score of 500. But with such a low score, a 10% down payment is required. A credit score of 580 is necessary to satisfy the minimum down payment of 3.5%.

Co-borrowers and co-signers are allowed.

Co-signersA mortgage application can benefit from co-borrowers and cosigners.

Additional security for the loan might be provided by the borrower's income and credit history. The co-borrower or cosigner, of course, must have a consistent income and decent credit.

Co-borrowers receive title to the property, are liable under the mortgage note, and must sign the security document. The income, assets, liabilities, and credit history of the co-borrower are all taken into account when establishing creditworthiness.

Cosigners do not take ownership of the property, but they are responsible for repaying the debt and must sign all documents, including the security instruments.

When establishing creditworthiness for a mortgage, the cosigner's income, assets, liabilities, and credit history are taken into account, and the cosigner must complete and sign the loan application.

A mortgage application can benefit from co-borrowers and cosigners.

Additional security for the loan might be provided by the borrower's income and credit history. The co-borrower or cosigner, of course, must have a consistent income and decent credit.

203(h) Loan Program

Young couple with their babyDid you know that the Federal Housing Administration (FHA) has a mortgage option that requires no down payment? The 203 (h) loan helps catastrophe victims recover by making it easier for them to secure mortgages and become or re-establish themselves as homeowners in Presidentially designated disaster zones.

There is no need for a down payment. 100% financing is available to the borrower. Closing costs and prepaid expenses must be paid in cash or through the premium pricing by the borrower, with seller concessions limited to 6% of the sales price. Although the upfront mortgage insurance payment is required, it can be financed with the loan. The mortgage payment includes monthly premiums (MIP). For the 203 (h) mortgage and other available loan programs, the Department of Housing and Urban Development (HUD) establishes lending limitations.


203(k) Loan Program

Run down house before 203k loanThe majority of house purchasers and homeowners are unaware of a fantastic loan program that combines the loan purchase with extra repair money. With the FHA's limited 203 (k) program, home buyers and homeowners may finance up to $35,000 into their mortgage to repair, remodel, or enhance their property.
Homebuyers may make their new house move-in ready by renovating the kitchen, painting the inside and or exterior, and installing new carpet.

Kitchen and bathroom remodels include replacing appliances, upgrading or replacing the heating and air-conditioning system, replacing the roof, including gutters and downspouts, making energy-efficient upgrades, and improving the septic system.

203(k) Standard

Major structural repairs are eligible for the 203 (k) standard loan, which needs a renovation cost of at least $5,000. The 203 (k) loan may be used to finance the purchase of a property.

The 203 (k) standard program is designed for major home repairs and upgrades. 203 (k) standard loan borrowers must engage a HUD-approved consultant to supervise the rehabilitation process. Projects that are 203 (k) qualified include:

  • Enhance the utility or aesthetic appeal of a house.
  • Remove all health and safety risks.
  • Renovate the plumbing or sewer systems if necessary.
  • The roof, gutters, and downspouts should all be installed or repaired.
  • Replace or install the flooring.
  • Major elements of the landscape should be improved.
  • Ensure that a handicapped person has access.
  • Improve the energy efficiency of your house.

Please note that this is a brief list and does not contain all 203 (k) loan-eligible projects.

Improvements to the home financed with a 203 (k) loan must be carried out by a licensed contractor and must be approved by an FHA appraiser; and a HUD consultant in some instances.