Houston Mortgage First-Time Homebuyer – Frequently Asked Questions (FAQ) – Part 8

Houston Financial Advice

Part 8: Exploring FHA Loans and Other Options

FHA loans can provide homebuyers and homeowners with more options than conventional loans. For
those who do not meet the eligibility requirements for a conventional loan, pursuing an FHA loan may
be a very wise decision. To learn more about the types of FHA loans and other FHA options that are
available, you might want to review these answers to some of the most Frequently Asked Questions
(FAQs) about FHA loans.

Does the FHA offer loans on homes that need renovations?

Yes. The 203(k) FHA loan allows the homebuyer to finance the cost of the purchase of the home as well as
the cost of rehabilitation. When taking out this type of FHA loan, a portion of the loan goes toward paying
the mortgage and the rest is placed into an escrow account. The funds are then released as the rehabilitation is completed. To qualify for a 203(k) loan, the transaction must meet the following guidelines:

  • The home must be a minimum of one year old
  • The rehabilitation costs must at least $5,000, but the total value of the property and its repairs must still fall within the FHA maximum mortgage limit
  • The loan must follow the standard 203(b) FHA loan requirements

Talk to your lender to learn more about the 203(k) loan and the types of renovations that are covered.

Does the FHA program loans to help add energy-efficient features to a home?

Yes. Whether taking out a 203(b) or 203(k) loan, you may also take out an Energy Efficient Mortgage. With
an Energy Efficient Mortgage, or EEM, you can finance the cost of adding energy-efficient features to a
new home or to an existing home. Guidelines for an EEM include:

  • The cost of the improvements must be determined by an energy consultant or by a Home Energy
    Rating System.
  • The anticipated savings must be more than the cost of making the improvements
  • Only one- and two-unit new and existing homes are eligible, while condos are not
  • The cost of the improvements being financed may be no more than 5 percent of the property value or $4,000, whichever is greater.
  • The total cost must fall within the FHA loan limit

    Does the FHA offer a loan for renovations only?

    Yes. The Title I loan is available for homeowners who wish to make repairs or non-luxury renovations to
    their homes. The Title I loan program offers a manageable interest rate and repayment schedule. Loans
    amounts through the Title I program are limited to between $5,000 and $20,000, with no lien required if the loan is less than $7,500.

    Does the FHA offer any other types of loans?

    Yes. The FHA also insurance loans for the purchase or rehabilitation of all of the following:

    • Condos
    • Cooperatives

    In addition, it offers special programs for disaster victims, urban areas and members of the armed forces.

    Insurance for Adjustable Rate Mortgages is also available from the FHA.

    What types of closing costs are associated with FHA-insured loans?

    FHA closing costs are similar to the costs associated with a conventional loan. You must pay a single,
    upfront mortgage insurance premium that is equal to 1.75 percent of the mortgage. You will then be responsible for the annual premium, which is paid on a monthly basis, if you have a mortgage that is over 15 years or if you have a 15-year mortgage loan with a loan-to-value that is greater than 90 percent. Although you cannot roll your closing costs into your FHA loan, you may be able to apply the amount you pay toward satisfying your down payment requirement.

    Are FHA loans assumable?

    Yes. If you are purchasing a home with an existing FHA-insured loan, you can assume the loan. Or, if you
    are the seller, you can allow the buyer to assume your FHA-insured loan. Assuming an FHA loan can offer
    many benefits. For example, the process is more streamlined and less expensive when compared to obtaining
    a new loan because the process mostly consists of conducting a credit check and demonstrating that you
    have sufficient income to pay off the loan. Furthermore, assuming an FHA loan typically results in a lower interest rate.

    What should I do if I cannot make payments on my FHA loan?

    If you are having trouble making payments on your FHA loan, you should call or write your lender as soon
    as possible. By clearly explaining the situation and providing the lender with your current financial information, you may be able to develop an alternative payment plan. HUD offers a number of loss mitigation programs that may be able to help. Some of these include:

    • Special Forbearance – the lender creates a revised repayment plan, which may include a temporary
      reduction or suspension of your payments
    • Mortgage Modification – allows you to refinance your debt and/or extend the terms of your
      mortgage loan; you may be able to qualify for this program if you have recovered from financial
      programs, but your net income is less than what it was before
    • Partial Claim – the lender helps you obtain an interest-free loan from HUD in order to bring your
      current mortgage up to current status
    • Pre-Foreclosure Sale – makes it possible for you to sell your property and pay off your loan in order
      to avoid foreclosure
    • Deed-In Lieu of Foreclosure – allows you to voluntarily give your property back to the lender; while
      this option will not save your house, it will help you avoid the extra time, cost and effort associated
      with the foreclosure process

    To qualify for these special programs, you must continue to live in the home that you have purchased with
    an FHA-insured loan.

    How can I learn more about obtaining an FHA-insured loan?

    For more information regarding FHA Loan Programs and eligibility requirements for FHA Loan Programs,
    contact an FHA-approved lender today or visit the HUD website at http://www.hud.gov.

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