10% Down 7 years 11 years

This method of calculating the required down payment applies to properties that have been constructed for one year or more or were constructed under FHA inspection. For those homes that are less than one year old or were not inspected during construction by FHA and/or VA, the required down payment is 10 percent of the value. Even though there is a difference in the down payment, the maximum loan amount is the same.

The usual down payment may vary with some of the programs available through FHA. As stated earlier, the easing of the down payments from approximately 50 percent allowed more people to purchase homes. Since the loans of FHA are relatively safe and possible loss to the lender is reduced, these loans usually have an interest rate that is below that charged on conventional mortgages or those loans with no governmental backing. With a lower interest rate, the monthly payments are lower, thus allowing a person to qualify for a greater loan amount with no increase in income. The effect that interest rates can have on the amount of the loan was dramatically illustrated in the high interest rates of late 1979 and into 1981. During this period, rates shot up from approximately 9.5 percent to over 18 percent. It was estimated that, with residential mortgage interest rates at 18 percent, only 5 percent of the population could afford housing.

♦ Assumable - FHA allows a person to assume an existing mortgage without the escalation or change of the interest rate. This escalation or change of interest for the assumption of a mortgage still exists today for some types of conventional mortgages. FHA felt that with America being a mobile society, the transfer of property should be made as easy as possible and one way was to allow those mortgages meeting the standards of FHA to be assumable On December 1, 1986, HUD made a major change in its assumption policy, in that any assumption made within 24 months after origination requires FHA qualification of the assumptor.

♦ No Prepayment Penalty - Probably one of the most important mortgage reforms instituted by FHA was to allow the borrower to pay off the mortgage prior to the due date of the mortgage without any prepayment penalty or prepayment premium. This lack of prepayment penalty is now a standard feature of all mortgages insured by FhA, but the penalty still can be found in many conventional mortgages. As a real estate professional, you need to know which conventional lenders in your area have prepayment penalties.

♦ Minimum Property Standards - As mentioned in the previous section, one of the reforms instituted by FHA was minimum property standards.

property has been inspected on a periodic basis and has been certified to conform to a minimum set of standards.
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