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Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of
Dollars Each Year
FTC
Consumer Alert!
Cancellation
of Private Mortgage Insurance:
Federal Law May Save You
Hundreds of Dollars Each Year
If you put less than 20 percent down on a home mortgage, lenders often require you to
have Private Mortgage Insurance (PMI). PMI protects the lender if you default on the loan.
The Homeowners Protection Act of 1998 - which became effective in 1999 - establishes rules
for automatic termination and borrower cancellation of PMI on home mortgages. These
protections apply to certain home mortgages signed on or after July 29, 1999 for the
purchase, initial construction, or refinance of a single-family home. These protections do
not apply to government-insured FHA or VA loans or to loans with lender-paid
PMI.
For home mortgages signed on or after July 29, 1999, your PMI must - with
certain exceptions - be terminated automatically when you reach 22 percent equity in your
home based on the original property value, if your mortgage payments are current. Your PMI
also can be canceled, when you request - with certain exceptions - when you reach 20
percent equity in your home based on the original property value, if your mortgage
payments are current.
One exception is if your loan is "high-risk." Another is if you have not been
current on your payments within the year prior to the time for termination or
cancellation. A third is if you have other liens on your property. For these loans, your
PMI may continue. Ask your lender or mortgage servicer (a company that collects your
payments) for more information about these requirements.
If you signed your mortgage before July 29, 1999, you can ask to have the PMI
canceled once you exceed 20 percent equity in your home. But federal law does not require
your lender or mortgage servicer to cancel the insurance.
On a $100,000 loan with 10 percent down ($10,000), PMI might cost you $40 a month. If
you can cancel the PMI, you can save $480 a year and many thousands of dollars over the
loan. Check your annual escrow account statement or call your lender to find out exactly
how much PMI is costing you each year.
Additional provisions in the law
New borrowers covered by the law must be told - at closing and once a year - about PMI
termination and cancellation.
Mortgage servicers must provide a telephone number for all their mortgage borrowers to
call for information about termination and cancellation of PMI.
Even though the law's termination and cancellation rights do not cover loans that were
signed before July 29, 1999, or loans with lender-paid PMI signed on any date, lenders or
mortgage servicers must tell borrowers about the termination or cancellation rights they
may otherwise have under those loans (such as rights established by the contract or state
law).
Next Steps
Some states may have laws that apply to early termination or cancellation of PMI - even
if you signed your mortgage before July 29, 1999. Call your state consumer protection
agency for more information about your state's rules. Fannie Mae and Freddie Mac, which
buy home mortgages from lenders, also may have guidelines affecting termination or
cancellation of PMI on home mortgages signed before July 29, 1999. Check with your lender
or mortgage servicer, or call Fannie Mae or Freddie Mac, for more information.
Contact your lender or mortgage servicer to learn whether you're paying PMI. If you
are, ask how and when it can be terminated or canceled.
For More Information
The FTC works for the consumer to
prevent fraudulent, deceptive and unfair business practices in the
marketplace and to provide information to help consumers spot, stop and
avoid them. To file a complaint or to get free
information on consumer issues , call
toll-free, 1-877-FTC-HELP (1-877-382-4357) ,
or use the online complaint form .
The FTC enters Internet, telemarketing, identity theft and other
fraud-related complaints into Consumer Sentinel ,
a secure, online database available to hundreds of civil and criminal law
enforcement agencies in the U.S. and abroad.
FEDERAL TRADE COMMISSION
FOR THE CONSUMER
1-877-FTC-HELP
www.ftc.gov
July 2000
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How Mortgage Insurance Works
The Library
"Mortgage Insurance 101" is one of many informational pamphlets produced
by the Mortgage Guaranty Insurance
Corporation. It is posted here with their generous permission.
How Mortgage Insurance Works
What is mortgage insurance?
It's a financial guaranty that insures lenders against loss in the
event a borrower defaults on a mortgage. If the borrower defaults and
the lender takes title to the property, the mortgage insurer (MGIC, for
example) reduces or eliminates the loss to the lender. In effect, the
mortgage insurer shares the risk of lending the money to the borrower.
(Mortgage insurance should not be confused with mortgage life
insurance, which provides coverage in the event of a borrower's death,
or homeowner's insurance, which protects the homeowner from loss due to
damage from fire, flood or other disaster.)
Who is mortgage insurance for?
All home buyers can benefit. It allows them to become homeowners
sooner, and it dramatically increases their buying power -- excellent
benefits from a buyer's perspective. First-time buyers can use a low
down payment to help them afford their first home, or to purchase a
more expensive home sooner. Repeat home buyers can put less money down
and gain significant tax advantages because they will have more
deductible interest to claim. They can also use the cash they would
have used for a large down payment for investments, moving costs or
other expenses.
What does mortgage insurance do for borrowers?
Without the guaranty of mortgage insurance, lenders normally require
a borrower to make a down payment of at least 20% of a home's purchase
price, which can mean years of saving for some borrowers. This large
down payment assures the lender that the borrower is committed to the
investment and will try to meet the obligation of monthly mortgage
payments to protect his investment. With the guaranty of mortgage
insurance, lenders are willing to accept as little as 5% or 10% down
from borrowers. Mortgage insurance fills the gap between the standard
requirement of 20% down and an amount the borrower can more easily
afford to put down on a purchase. A low down payment also allows
borrowers to purchase more home than they might otherwise be able to
afford. Without mortgage insurance, a borrower who has saved $10,000
for the required minimum 20% down payment would only be able to
purchase a $50,000 home.With mortgage insurance (and income and credit
permitting), the borrower could make a down payment of only 10% and
purchase a $100,000 home with the $10,000! Or put $7,500 down on a
$75,000 home and use the remaining $2,500 for decorating, investing, or
buying a car or major appliance. Mortgage insurance broadens a
borrower's options.
Who pays for mortgage insurance?
Generally borrowers do. An initial premium is collected at closing
and, depending on the premium plan chosen, a monthly amount may be
included in the house payment made to the lender, who remits payment to
the mortgage insurer. MGIC offers flexible premium plans for borrowers:
Annuals. The borrower pays the first-year
premium at closing; an annual renewal premium is collected monthly
as part of the total monthly house payment.
Monthly Premiums.
The cost is slightly more than traditional mortgage insurance plans but
monthly premiums dramatically reduce mortgage insurance closing costs.
Borrowers pay for mortgage insurance monthly as part of their total monthly
house payment but only need to pay one month's mortgage insurance
premium at closing, rather than one year's.
Singles.
The borrower pays a one-time single premium (instead of an
initial premium and renewal premiums). Since single premiums are
typically financed as part of the mortgage loan amount, no out-of-pocket
cash is used for mortgage insurance at closing.
These plans offer the choice of refundable or nonrefundable premiums.
A refundable premium allows the borrower the opportunity to receive
money back on any unused portion, in the event that mortgage insurance
coverage is discontinued before the loan is paid in full. The cost for
a nonrefundable premium is slightly less than that of a refundable
premium, thereby giving the borrower a small savings. If coverage is
discontinued on a loan with a nonrefundable premium, the borrower has
no opportunity for a refund.
Is there anything else important to know?
No. Just remember, with mortgage insurance, borrowers can increase
buying power, put less money down and purchase a home sooner. It's as
simple as that.
Programs and program availability may vary from state to state.
Premium rates must be selected based upon the location of the property.
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Consumer Information Center: Guide to Single-Family Home Mortgage
Insurance
Guide
To Single Family Home Mortgage Insurance
Becoming
a Homeowner
Many Americans dream of owning their own homes, but few families are
able to pay cash for them. Many people who could not otherwise afford
to own a house become homeowners with the help of FHA mortgage
insurance programs.
Helping people obtain financing for their homes is one of the chief
purposes of FHA. FHA is the Federal Housing Administration. It is part
of the U.S. Department of Housing and Urban Development (HUD). Once
you have found the home you want to buy, you must decide how to
finance your dream. This booklet gives you information about FHA
programs to help you meet that challenge. It explains:
How FHA mortgage insurance works
How to shop for a HUD-approved lender
How to apply for an FHA-insured loan
How your payment schedule will operate
What restrictions apply to FHA-insured mortgages
Which specific FHA program can best help you
How FHA
Mortgage Insurance Works
FHA mortgage insurance allows a homebuyer to make a modest
downpayment and obtain a mortgage for the balance of the purchase
price.
The mortgage loan is made by a bank, savings and loan association,
mortgage company, credit union, or other FHA-approved lender. FHA
(HUD) insures the loan and pays the lender if the borrower defaults on
the mortgage. Because the lender is protected by this insurance, it
can offer more liberal mortgage terms than the prospective homeowner
might otherwise obtain.
HUD does not make direct loans to help people build or buy homes.
Who Can
Get an FHA-Insured Mortgage
Almost any individual who has a satisfactory credit record, enough
cash to close the loan, and sufficient steady income to make monthly
mortgage payments without difficulty can be approved for an
FHA-insured mortgage. Generally, only people who will reside in the
property are eligible for FHA-insured mortgages.
HUD sets no upper age limit for the borrower, nor does HUD require
that the borrower have a certain income level to buy a home at a
certain price. Income is simply one of several factors that help a
lender and HUD determine whether the borrower will be able to repay
the mortgage.
FHA mortgages are available to individuals regardless of race,
creed, religion, sex, or marital status.
Types of
Mortgages FHA Insures
HUD insures mortgages to buy existing homes, to improve homes, to
purchase a newly built home, and to refinance existing indebtedness.
FHA-insured mortgages are available for many types of properties,
including:
One-family residences
Two-, three-, and four-unit properties
Condominium units
Houses needing rehabilitation.
The terms of FHA-insured mortgages can also be structured in
different ways, such as:
Fixed rate, level payment mortgages
Graduated payment mortgages
Growing equity mortgages
Adjustable rate mortgages
Each of these mortgages is explained later in this brochure.
Shopping
for an FHA-Insured Loan
After you have found the home you want to buy, you should call
various lenders listed under "Mortgages" in the Yellow Pages
to find the lender offering the best terms.
The costs associated with a loan can vary significantly from one
lender to another. It pays to comparison shop for a mortgage. The most
important factors to consider in comparing loans are:
Interest Rate
Discount points
Closing costs and other fees, such as charges to originate the
loan, commitment fees to "lock in" the mortgage terms you
and the lender have agreed to for a certain period, and?
mortgageinsurance premiums (MIP).
Annual Percentage Rate
All of these factors are negotiated between you and your lender. HUD
does not establish minimum or maximum amounts for the interest rate,
discount points, or most processing fees you pay your lender.
Interest
Rate
The interest rate a borrower pays for the mortgage is negotiated
between the borrower and the lender. Interest rates fluctuate daily,
depending on conditions in the mortgage market. It is always a good
idea to check with several mortgage lenders to make sure you are
getting the best interest rate available.
The following chart shows how the principal and interest on your
mortgage will vary according to the interest rate.
Monthly Payment for Principal and Interest
on a 30-Year Fixed Rate Level Payment Mortgage
Mortgage Amount
Interest Rate
7.0%
8.0%
9.0%
10.0%
$40,000
266.40
263.60
322.00
351.20
$50,000
333.00
367.00
402.50
439.00
$60,000
399.60
440.40
483.00
526.80
$70,000*
466.20
513.80
563.50
614.60
$80,000*
532.80
587.20
644.00
702.40
$90,000*
599.40
660.60
724.50
790.20
*The maximum FHA-insured mortgage is $115,200. In areas
where the cost of housing is high, the limit may go up to $208,800.
Initial
Investment (Downpayment)
The borrower's initial cash investment is the difference between the
amount of the mortgage and the total cost of the home. The total cost
includes the purchase price plus closing costs, but it does not
include prepaid items that you have to pay at settlement, such as real
estate taxes and hazard insurance. Most FHA programs require the
borrower to invest a minimum of three percent of the total property
cost.
Discount
Points
Lenders can charge discount points to borrowers. A point is $1 for
every $100 of the mortgage amount. Points are charged when the
interest rate is lower than the yield required by investors who buy
mortgage securities. (Yield is the ratio of investment income to the
total amount invested over a given period of time.) Securities are "packaged,"
usually in portfolios of $1 million dollars or more, and bought and
sold in the financial markets. This creates additional mortgage money
to lend to other homebuyers.
The numbers of points charged varies in different places at
different times and among different lenders.
Discount points for an FHA-insured mortgage may be paid by
homebuyer, the builder of the house, or the person selling the house.
Discount points may not be financed as part of the mortgage amount
(unless you are refinancing your mortgage and you have sufficient
equity in the home to cover the points).
HUD does not control the number of points you agree to pay your
lender. HUD does not set the points that a lender may require, and HUD
does not receive any of this money.
Closing
Costs and Prepaid Items
When your loan is finalized, you will have to pay closing costs.
These fees may include a lender's service charge or origination fee,
cost of the title search, fees for preparing, notarizing, and
recording the deed and the mortgage, and other items. You will also be
asked to make payments in advance for such items as taxes, property
insurance, and interest to the end of the month.
Certain closing costs, such as recording fees and taxes, title
examination, and credit reports, may be paid by the seller, or they
may be shared between the borrower and the seller, depending on the
terms of the sales contract.
The Real Estate Settlement Procedures Act (RESPA) requires that your
lender give you an information booklet and a Good Faith Estimate on
your closing costs within three days of receiving your written loan
application. RESPA also requires that at closing or shortly afterward,
you must receive a Uniform Settlement Statement , which is a permanent
record of all the final settlement charges. You are entitled to review
the Settlement Statement one business day before you close on your
loan.
Origination
Fees
Lenders may charge a service charge (called an origination fee) when
you submit your mortgage application. In most cases, this charge
cannot exceed one percent of the mortgage amount. However, if you are
buying and rehabilitating your purchase under the Section 203(k)
Program, a lender can charge an additional $350 or 2.5 percent of the
portion of the mortgage that is escrowed for the rehabilitation.
Commitment
Fees
The lender may charge a fee to "lock in" the interest
rate, number of discount points, and other terms you have agreed to,
or to limit the extent to which the terms may be changed. Lenders may
agree to offer the loan terms for a definite period of time (30 days,
60 days, 90 days, etc.), or they may refuse to do so. The terms of
your commitment agreement will determine to what extent, if any, the
interest rate and discount points may change before your loan closes.
Any increase in the number of discount points or a one percent
increase in the interest rate requires that your mortgage application
be reprocessed.
Mortgage
Insurance Premium
HUD charges a premium to insure mortgages. The premiums are used to
pay claims to lenders when a borrower defaults on an FHA-insured
mortgage.
Most borrowers with FHA-insured mortgages currently pay an up-front
mortgage insurance premium (MIP) and an annual MIP as well. The
up-front MIP can be financed into the mortgage. Your lender can
provide you with more information about MIP charges.
Annual
Percentage Rate
The Truth in Lending Act requires lenders to disclose to borrowers
the annual percentage rate charged on a mortgage to finance the
purchase of residential real estate. The annual percentage rate is
calculated by adding the interest rate, the discount points, the
initial service charge, the premium paid to insure the mortgage, and
certain other charges collected by the lender. The Truth in Lending
Act is administered by the Board of Governors of the Federal Reserve
System.
Your monthly payment will be determined by the amount of your
mortgage, the interest rate, and the length of the loan. A longer
mortgage term will lower your monthly payment, but it will increase
the total amount of interest you pay. For example, if you borrow
$50,000 with an interest rate of 10 percent, your payment to principal
and interest will be:
Monthly
Term
Total Payment
$537.50
15 years
$96,750
$439.50
30 years
$158,040
Applying
for the Loan
When you have selected a lender, arrange a meeting with the loan
officer to fill out the application forms. At the interview, you will
have to provide the lender with your most recent bank statement and
pay stub, picture identification, and proof of your social security
number. You will also have to pay fees for an appraisal and a credit
report.
The lender will take care of processing the loan for FHA insurance
and will arrange to close the loan.
Many lenders are authorized to approve mortgage applications without
submitting any paperwork to HUD. These companies are called Direct
Endorsement lenders. Most FHA-insured loans are handled by these
lenders. In some cases, however, HUD reviews information submitted by
the lender and determines whether the property and the borrower are
acceptable risks for an FHA-insured mortgage. Regardless of the type
of loan you select, you will deal only with the lender, and the lender
will handle all transactions with HUD.
Payments
on an FHA-Insured Mortgage
Monthly Payments The amount of your monthly payment
will depend on how much money you borrow and the interest rate on your
loan. Your monthly mortgage payment will include money to repay the
principal amount you borrowed, the interest on that money, your FHA
mortgage insurance premium, and amounts for taxes and property
insurance. Typically, your combined monthly payment for principal,
interest, taxes, and insurance should be no more than 29 percent of
your gross (total) monthly income (before taxes).
Advance Payments With an FHA-insured mortgage, you can
make extra payments toward the principal when you make your regularly
monthly payment. By making extra payments, you can repay the loan
faster and save on interest. However, extra payments do not relieve
you from continuing to make regular payments every month.
You can also pay off the entire balance of your FHA-insured mortgage
at any time.
Limits
on FHA-Insured Mortgages
Amount of the Mortgage There is a limit on the maximum
mortgage HUD will insure. Generally, for a single family home, HUD
insures mortgages up to $115,200. If you live in an area where the
cost of housing is high, HUD may insure a mortgage up to $208,800.
Information about the mortgage limits for the area you live in may be
obtained from HUD-approved lending institutions or the local HUD Field
Office.
Property Appraisal For an existing home, HUD's estimate
of the appraised value is based on the condition of the house and
recent sales of comparable properties in the neighborhood. If there
are obvious, serious defects, the house must be repaired before HUD
insures the mortgage.
If your house has not yet been built, HUD will base the estimate of
its value on the plans and specifications for the house and the value
of the land where it will be built.
Existing houses are generally sold "as is" unless the
buyer and seller agree, usually in writing, to repairs. Since there
may be hidden defects in a home, the homebuyer should carefully
examine the house or have the house inspected by a professional home
inspection firm and be satisfied of its soundness before
purchasing. An appraisal is not an inspection, and HUD does not
warrant the condition of the house you buy.
The Most
Frequently Used FHA Mortgage Insurance Programs
Section 203(b) Home Mortgage Insurance (Federal
Domestic Assistance Codes 14.117 and 14.118) Section 203(b)
of the National Housing Act is the most commonly used HUD single
family program. This program is available in all areas of the country,
provided a market exists for the property and the home meets HUD's
Minimum Property Standards. You may use the Section 203(b) Program to
purchase a new or existing one- to four-family home in both urban and
rural areas.
A Section 203(b) mortgage may be repaid in monthly payments over 10,
15, 20, 25, or 30 years.
Section 234(c) Condominium Units (Federal
Domestic Assistance Code 14.133) Section 234(c) provides
mortgage insurance for buyers who wish to purchase a unit in a
condominium project. The condominium may consist of more than one
building, such as a group of row apartments, high-rise buildings,
townhouses, or any combination of these structures.
When you buy a unit in a condominium, you will own one unit in a
multi-unit project, and you will have a voting interest in the
condominium association that governs the day-to-day operation of the
project.
You will share an undivided interest with other owners in the common
areas and facilities that serve the project and share the obligation
to maintain them. All owners pay a monthly condominium fee to the
association to maintain the shared common areas and facilities,
including common land areas, roofs, floors, main walls, stairways,
lobbies, halls, and parking spaces. This payment is separate from the
regular monthly mortgage payment.
Any condominium project must be approved by HUD before you can
purchase a unit using an FHA-insured mortgage. HUD requires that 51
percent of the units in the project must be owner-occupied
before FHA will offer mortgage insurance for individual units in the
project.
Section 203(k) Rehabilitation Home Mortgage Insurance (Federal
Domestic Assistance Code 14.108) Section 203(k) mortgages
allow you to purchase or refinance and rehabilitate a home at least
one year old. A portion of the loan proceeds are used to pay off the
existing mortgage, and the remaining funds are placed in an escrow
account and released as rehabilitation is completed.
The loan may be used to purchase a home and the land on which it is
located and rehabilitate it; purchase a home on one site and move it
onto a new foundation at another site and rehabilitate it; or
refinance an existing mortgage to rehabilitate the home. In addition,
a Section 203(k) mortgage may be used to convert non-residential
buildings to residential use or to change the number of family units
in the home. Condominium and cooperative units are not eligible for
Section 203(k) mortgages.
The maximum allowable mortgage for a 203(k) loan is the lessor
of:
The estimate of the as-is value or the purchase price of the
property before rehabilitation, which ever is less , plus the
estimated cost of rehabilitation and allowable closing costs, or
110 percent of the expected market value of the property upon
completion of the work, plus allowable closing costs.
Money can be escrowed to help you make mortgage payments during the
rehabilitation work. In determining the maximum mortgage amount, this
Mortgage Payment Reserve is considered a part of the cost of
rehabilitation.
Section 245(a) Graduated Payment Mortgage (Federal
Domestic Assistance Code 14.159) The Graduated Payment
Mortgage (GPM) Program allows you to make lower payments during the
early years of the loan. As your income increases, your payments
gradually increase for several years, then level off and remain steady
for the balance of the mortgage.
With a GPM, you in effect borrow additional money during the early
years of your mortgage by deferring interest payments. This allows you
to have smaller initial monthly payments. The deferred interest is
added to the loan balance in later years.
FHA offers five GPM payment plans, which vary in the rate of payment
increases and the number of years over which the payments will
increase. The greater the rate of increase or the longer the period of
increase, the lower the mortgage payments in the early years. For
example:
GPM Plan
Increase in Monthly Payments
Frequency of Increase
Plan 1
2.5 percent
First 5 years
Plan 2
5 percent
First 5 years
Plan 3
7.5 percent
First 5 years
Plan 4
2 percent
First 10 years
Plan 5
3 percent
First 10 years
To give you an idea of how a 245(a) GPM works, the following table
compares the monthly payment schedule of a 203(b) FHA-insured loan
with Plan 3, the most frequently used GPM plan. In Plan 3, payments
increase 7.5 percent each year for 5 years before leveling off. The
example uses a 30-year, $60,000 mortgage, with an interest rate of 10
percent:
Year
203(b)
GPM Loan
1
526.80
400.22
2
526.80
430.24
3
526.80
462.50
4
526.80
497.20
5
526.80
534.49
6
526.80
574.57
Remaining Payments
526.80
574.57
Section 245(a) Growing Equity Mortgage (Federal
Domestic Assistance Code 14.159) A Growing Equity Mortgage
(GEM) is a graduated payment mortgage that provides for rapid
principal payment and a shorter mortgage term by increasing payments
over a period of time.
Scheduled increases in monthly payments are applied directly to the
principal, allowing a shorter term than a GPM or a level payment
mortgage. The total cost of your mortgage will also be reduced because
you pay off the balance sooner.
The length of the mortgage varies according to the plan you choose.
Section 251 Adjustable Rate Mortgage (Federal
Domestic Assistance Code 141.75) An Adjustable Rate Mortgage
differs from a fixed rate mortgage because the interest rate and
monthly payments may increase or decrease during the life of the loan.
The initial interest rate on your mortgage will remain in effect
from 12 to 18 months. Your mortgage documents will indicate the date
when the first change in your interest rate will occur. Thereafter,
your monthly payments will increase if the one-year Treasury Constant
Maturities index goes up and will decrease if theis Index falls.
Your interest rate cannot increase or decrease more than one percent
in any one year. Over the life of the loan, the interest rate may not
increase or decrease more than five percent from the initial interest
rate.
Your lender must explain how the Adjustable Rate Mortgage is
calculated when you apply for your loan. Your lender must inform you
at least 25 days in advance if there is an adjustment to your monthly
payment.
Other FHA Mortgage Insurance Programs
Although the following FHA mortgage insurance programs are still
active, they are not used as much as the six major FHA programs,
because they were designed to serve certain specific purposes.
Section 203(h) Mortgage Insurance for Disaster Victims (Federal
Domestic Assistance Code 14.119) You may use this program to
finance the purchase of a home if your home was damaged or destroyed
because of a major disaster. The President of the United States must
designate the area a major disaster area. The loan may be used to
purchase an existing home or a newly built home.
Disaster victims are not required to meet minimum investment
requirements, and a downpayment is not required.
Section 203(i) Mortgage Insurance for Outlying Area
Properties (Federal Domestic Assistance Code 14.121)
You may use Section 203(i) to purchase a home in a rural area.
You may also use it to purchase a new farm house on 2.5 or more acres
of land adjacent to an all-weather road.
Section 220 Urban Renewal Mortgage Insurance (Federal
Domestic Assistance Code 14.122) This program is used in
conjunction with local governments to rehabilitate existing dwellings
for up to 11 families or to build new dwellings in redevelopment areas
where concentrated housing, physical development, and public service
activities are being carried out. If the building houses more than
four families, the mortgage limit increases $9,165 for each additional
unit.
Section 220(h) Insured Improvement Loans in Urban Areas
These loans are used to finance alterations, repairs, or
improvements to existing dwellings housing up to 11 families in a
redevelopment area as defined in Section 220. The mortgage limit is
the lessor of:
HUD's estimate of the cost of improvements;
$40,000; or
$12,000 for each family unit ($17,400 in high cost areas).
Section 221(d)(2) Home Mortgage Insurance for Low and
Moderate Income Families (Federal Domestic Assistance Code
14.120) This program may be used by low- to moderate-income
families to finance the purchase of a home. It may also be used by
families displaced by urban renewal, code enforcement, condemnation,
etc., or as a result of the President declaring an area a major
disaster. The mortgage limit for a one-family unit is $31,000. This
amount may be increased up to $36,000 in high cost areas determined by
the Department.
Section 223(e) Miscellaneous Housing Insurance (Federal
Domestic Assistance Code 14.123) You may use Section 223(e)
to purchase a property in an older, declining urban area where normal
requirements for mortgage insurance cannot be met. Only HUD can
determine whether a property is eligible for Section 223(e) mortgage
insurance. This program is intended to supplement other HUD mortgage
insurance programs.
Section 237 Mortgage Insurance for Special Credit Risks (Federal
Domestic Assistance Code 14.140) Low- and moderate-income
families who are unable to meet the normal underwriting standards of
HUD's other single family programs because of their credit history may
use Section 237 to finance the purchase of new, existing, or
substantially rehabilitated single-family homes or condominiums. To
qualify for a Section 237 mortgage, you must obtain counseling
assistance from a HUD-approved counseling agency. These agencies
provide budget, debt-management, and related counseling services to
families as needed.
This program is limited by law to mortgages up to $18,000?($21,000
in high cost areas).
Section 238(c) Mortgage Insurance in Military Impacted Areas (Federal
Domestic Assistance Code 14.165) You may use Section 238(c)
to finance the repair, rehabilitation, or purchase of a home near any
military installation in a federally-impacted area. The Secretary of
Defense must certify the need for additional housing in the area.
Section 240 Purchase of Fee-Simple Title from Lessors (Federal
Domestic Assistance Code 14.130) You may use Section 240 to
finance the purchase of fee-simple title if your home is on leased
land. The maximum mortgage amount is the lessor of:
$10,000 per family unit ($30,000 if the property is in Hawaii);
The cost of purchasing the fee simple title; or
An amount that does not exceed the maximum mortgage insurable
under Section 203(b).
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