This program allows homebuyers to purchase and rehabilitate
single family properties with one loan/mortgage.
Historically, the program has been underutilized.
However, within the past few years the loan origination process was streamlined,
and the authority to make loan decisions was delegated to local FHA Offices.
As prospective homebuyer, there are several factors that
you must consider before applying for a mortgage.
In addition to the type mortgage (fixed-rate, ARM, etc.) and the various
mortgage products available, there are certain key terms that the novice homebuyer
should understand about the products offered to effectively compare and decide
which is best. At a minimum, you should have a general
idea about the following:
Down payment, requirements vary by mortgage. Some lenders offer a
95% LTV which requires a 5% down payment. Under certain programs, many
lenders allow up to 2% of the 5% down payment to come from a gift, a grant
from a non-profit organization, or from a federal, state or local government
agency. Fannie Mae offers a 3% down payment program. FHA offers
a 3% down payment on homes selling for $50,000 or less.
A discount point is equal to 1% of the loan amount (on a $70,000
loan, a point would be $700). Discount points can be thought of as prepaid
interest because they increase the lenderís yield on loans without raising
the stated interest. Each point is approximately 1/8 percent added to
the interest rate. For instance, an 8% loan with 2 points is roughly
equal to 8 1/4 % loan with no points. The more points required, the
more cash is needed at closing because discount points cannot be financed.
The fewer points required, the higher the interest rate. Paying points to
bring a rate down only makes sense if you do not refinance or sell the home
for many years. Prospective homebuyers must be aware of lenders and
brokers that charge excessive points and rates.
Annual Percentage Rate (APR) is the total yearly costs for the mortgage
stated as a percentage of the loan amount. The APR is a better source
for comparison of mortgage costs than the interest rate alone.
There exist many valid ways to obtain a mortgage in today's high tech age including online applications, but be extra alert for scams if you see any of the following:
Before you initiate contact you get an unsolicited call asking for personal information.
You find yourself on an unsecure web form (look for a lock symbol on your browser for secure forms.)
Fake graphics on a web form (Secure certificates and BBB logos should link to information on the company.)
Someone offers you a deal that sounds unrealistic.
If combined with these you are asked for social security number or bank account numbers.