FHA Available Programs and Product Options from Christopher Shearer

Christopher Shearer

FHA Available Programs and Product Options

Title I loans are second mortgages intended for renovation purposes, and are offered by only a few specialized lenders today. However, FHA Title II loans are the first mortgage options that residential loan originators primarily work with. The most common programs of the standard Title II programs are:

• Section 203b loan (Fixed rate purchase or refinance).
• Section 251 loan (Adjustable rate FHA mortgages for primary residences that include the one year ARM and the hybrid 3/1, 5/1, 7/1, and 10/1 FHA insured ARMs).
• Section 234c (Condominium properties that can be spot approved. Refer to mortgagee letter 96-41 for more specific information about section 234c property approval process.)

There are a few other programs that you may need to use on occasion, such as the 203k loan, which is intended for funding renovations. The 203k allows the borrower to finance $5,000 or more in repairs, either at the time of purchase or in the future (via a refinance). There is a six-month time frame allotted to complete the work, and there are additional requirements.

Another option is the 203h loan, which is intended for use as relief for borrowers whose homes have been subject to damage as a result of major storms or natural disaster. These loans are available to borrowers who own property in a federally declared disaster area, as verified (or "red tagged") by FEMA.

A third program that is gaining popularity is the section 255 reverse equity mortgage (HECM- Home Equity Conversion Mortgage). These loans allow senior citizens aged 62 or older to extract some of their equity without a hefty repayment. This is beneficial because they are able to access their property's equity without having to sell the home or increase their monthly mortgage payments.

The fourth group of available FHA programs is comprised of those sections that you will very rarely see anybody use or offer, but they do exist. Section 245, which is an FHA graduated payment mortgage, offers a very low introductory rate for a certain period of time, and may allow scheduled negative amortization, and then over time the loan progresses into a payment that is rate & term, which allows the borrower to end up repaying the loan over an extended period of time.

Another rarely used option is the section 247 loan. These are loans to Native Hawaiians made only in Hawaii. They have a limited scope of usability for most loan officers.

Another rarely used program is the HUD section 184/284 loan, which is a Native American loan, used primarily on tribal land. This program has special provisions for qualified members of an Indian Nation.

And one final loan option is the FHA veterans loan programs, specifically addressed in a mortgagee letter from 2004 numbered ML 04-24, which waives the 3% minimum investment requirement for eligible veterans. To qualify, a certificate must be submitted to the Department of Veterans Affairs (http://www.va.gov) to determine whether or not the veteran is eligible for the program. This loan option reduces the closing costs and down payment to the veteran to the standard minimum down payment discussed early in this section. The benefit is that an eligible veteran who already has their full VA loan guaranty eligibility in use, could utilize this option in the event of a move or relocation, to purchase another primary residence with a low down payment.