Consumer News - Consumer Guides - Home Mortgage Insurance: 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.

Generally, a 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.

The maximum allowable mortgage for a 203(k) loan is the lesser 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)
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 this 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. More details about these programs are available at www.hud.gov.

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Table of Contents

Becoming a Homeowner

How FHA Mortgage Insurance Works

Who Can Get an FHA-Insured Mortgage?

Types of Mortgages FHA Insures

Shopping for an FHA-Insured Loan

Interest Rate

Initial Investment (Down payment)

Discount Points

Closing Costs and Prepaid Items

Origination Fees