February 9, 2017
FHA loans are a good option to consider, especially if you are looking for an alternative to the comparatively high down payment requirements of many conventional mortgages. But do you know all of your FHA mortgage options?
HUD 4000.1, the FHA single family home loan rule book, describes the basic options borrowers can choose from. FHA loans are not just for new purchases-you can apply for a refinance loan, or you can apply to purchase and rehab a property you intend to live in as your primary residence.
HUD 4000.1 describes your FHA loan options starting with the most typical FHA mortgage:
Purchase Loans and Construction-to-Permanent Loans
“The Borrower may finance the purchase of an existing one- to four-unit residence, and may also finance construction of a one- to four-unit residence through a Construction to Permanent Mortgage.”
“Properties to be acquired through an unrecorded land contract must be treated as a purchase.”
FHA loans for this type of “forward mortgage” typically require the borrower to make a down payment of 3.5%.
Standard and Streamlined Rehab Mortgage Loans
“The Section 203(k) Rehabilitation Mortgage Insurance is used to rehabilitate an existing one- to four-unit Structure, which will be used primarily for residential purposes; rehabilitate such a Structure and refinance the outstanding indebtedness on the Structure and the Real Property on which the Structure is located; or purchase and rehabilitate the Structure and purchase the Real Property on which the Structure is located.”
FHA loans for purchase and/or rehab require some extra work between the borrower and the lender since the nature of your rehab or repair work may determine which kind of FHA mortgage loan you should apply for in this area.
Some are for general purposes, others are specifically intended to help natural disaster victims (see below), and some FHA rehab loans are specifically for smaller projects with lower dollar amounts required.
Rehab Loans and Refinance Loans For Disaster Victims
“The Section 203(h) Mortgage Insurance for Disaster Victims program allows FHA to insure Mortgages made by qualified Mortgagees to victims of a Presidentially-Declared Major Disaster Area (PDMDA) who have lost their housing, or whose housing was damaged and are in the process of rebuilding or buying another house.”
FHA Refinance Loans
“A refinance transaction is a new Mortgage for a Borrower with legal title on the same property with the proceeds used to pay off any existing liens.”
FHA refinance loan options include cash-out, no cash out, conventional/non-FHA-to-FHA, and streamline (for existing FHA loans only).
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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