FHA Single Family Mortgage Insurance Program

Homebuyers may obtain FHA-insured mortgages from HUD-approved lenders to purchase homes (including condominium units) with low downpayments. This program provides mortgage insurance to protect lenders against the risk of default on mortgages to qualified buyers. Insured mortgages may be used to finance the purchase of new or existing one to four family housing, as well as to refinance debt.

Section 203(b) is the centerpiece of FHA's single family insurance programs. It is the successor of the program that helped save homeowners from default in the 1930s, helped open the suburbs for returning veterans in the 1940s and 1950s, and helped shape the modern mortgage finance system. Today, FHA One to Four Family Mortgage Insurance is still an important tool through which the Federal Government expands home ownership opportunities for first time homebuyers and other borrowers who would not otherwise qualify for conventional loans on affordable terms, as well as for those who live in underserved areas where mortgages may be harder to get. FHA has insured more than 37 million mortgages since 1934. These obligations are protected by FHA's Mutual Mortgage Insurance Fund, which is sustained entirely by borrower premiums.

Section 203(b) has several important features:

Downpayment requirements can be low. In contrast to conventional mortgage products, which frequently require down payments of 5 percent or more of the purchase price of the home, single family mortgages insured by FHA under Section 203(b) make it possible to reduce down payments to as little as 3.5 percent. This is because FHA insurance allows borrowers to finance approximately 96.5 percent of the value of their home purchase through their mortgage, in some cases.

MIP can be financed. FHA mortgage insurance is not free: borrowers pay an upfront insurance premium (which may be financed) at the time of purchase, as well as monthly premiums that are not financed, but instead are added to the regular mortgage payment.

Some fees are limited. FHA rules impose limits on some of the fees that lenders may charge in making a loan. For example, the loan origination fee charged by the lender for the administrative cost of processing the loan may not exceed one percent of the amount of the mortgage. Nor can borrowers pay a tax service fee.

HUD sets limits on the amount that may be insured. The current FHA mortgage limit can vary depending on geographic location and can be found online at HUD’s website https://entp.hud.gov/idapp/html/hicostlook.cfm.

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