A First Preston HT Company
 How to buy a home from FHA
FHA offers 1-to-4 unit residential properties HUD acquires as a result of a foreclosure action on an FHA-insured mortgage. FHA becomes the property owner and offers homes for sale at consumer-friendly prices to recover the loss on the foreclosure claim.
Any real estate broker registered with FHA may submit an offer and contract to purchase on your behalf. FHA pays the real estate broker's commission using proceeds from the property sale.
FHA's homes are offered for sale at fair market value, based on a recent appraisal. Generally, FHA sells homes in what is known as an "Offer Period," during which a potential buyer's offer must be made. At the end of the Offer Period, all offers are opened and the bid providing the highest acceptable net return to FHA may then be accepted. Following the initial "Offer Period" homes remaining unsold are offered on an "extended" basis which means offers may be submitted any business day. If a bid on one of these homes is acceptable, the broker will usually be notified within 48 hours of FHA's acceptance of the offer.
 Understanding HUD Properties and Financing
  1. Where do FHA properties come from?
    FHA, or the Federal Housing Administration, is part of the Federal Government's Department of Housing and Urban Development (HUD). FHA helps homebuyers qualify for mortgage financing by offering lenders insurance against homebuyer default.
    When a homebuyer defaults on an FHA insured mortgage, the lender may foreclose and take ownership of the home. The lender then transfers ownership of the home to FHA in exchange for FHA paying the lender the balance that was due on the mortgage. FHA sells tens of thousands of foreclosed properties each year using the expertise of AM Contractors.
  2. If I want to buy a HUD property, can I use an FHA loan to buy the home?
    Yes! Your lender still needs to qualify you for an FHA insured loan. Remember, FHA does not make loans directly to homebuyers. You must go through your lender. However, FHA financing is not required. Your lender can guide you through available financing programs, including FHA.
  3. Does getting an FHA-insured mortgage help in buying a HUD Home?
    HUD may have more attractive downpayment terms on an FHA mortgage if a borrower is buying a HUD home. Check with your real estate broker regarding special terms or homebuyer incentives.
  4. Can HUD help if the property I am buying needs some repairs?
    Through the FHA, HUD offers Property Rehabilitation Mortgage Insurance, also known as a "203k loan". In this program a lender sets aside part of your mortgage in a repair escrow, which you can draw on to make needed repairs. Talk to your lender about FHA 203k loans, and if one is right for you.
For more information on HUD Properties go to HUD's website at
http://www.neighborhoodlink.com/article/Homeowner/How_To_Buy_A_HUD_Home.
To find a specific FHA approved lender in your area, go to: http://www.hud.gov/ll/code/llslcrit.cfm.
 FHA's 9-step process for first-time buyers
For first-time home buyers, there is a huge amount of information and guidance available. Sorting it out, and making sure that it is objective can be challenging. FHA provides the best guidance in this area centered around 9 steps any soon-to-be homeowner should take. We will guide you through these 9 steps, and give you plenty of support along the way.
It may be surprising to you, but most homebuyers find their homes through the Internet. Feel free to start your journey by selecting homes currently available in your area, using the How To Search For A Home feature on the HomeTelosFIRST Homepage. The steps below can help you to refine your choice, and better help to smooth the road to buying the home that best meets your needs.
Step 1. Figure out how much you can afford.
To help you calculate how much you can afford to buy a home, FHA recommends you use models operated by Ginnie Mae, like FHA a part of HUD that supports mortgage financing. To get an answer to just how much you can afford, click on http://www.ginniemae.gov/2_prequal/intro_questions.asp?Section=YPTH
Step 2. Should you rent or buy?
Is this the right time financially for you to by? To see what works best for you financially, click on
http://www.ginniemae.gov/rent_vs_buy/rent_vs_buy_calc.asp?Section=YPTH
Step 3. Know your rights.
You need to make sure you receive the information you are entitled to along your road to homeownership.
You have the Right to..
  • Shop for the best loan for you and compare the charges of different mortgage brokers and lenders.
  • Ask for a Good Faith Estimate of all loan and settlement charges from your lender before you agree to the loan and pay any fees.
  • Know what fees are not refundable if you decide to cancel the loan agreement.
  • Ask your mortgage broker to explain exactly what the mortgage broker will do for you.
  • Know how much the mortgage broker is getting paid by you and the lender for your loan.
  • Ask questions about charges and loan terms that you do not understand.
  • Receive a credit decision that is not based on your race, color, religion, national origin, sex, marital status, age, or whether any income is from public assistance.
  • Know the reason if your loan was turned down.
  • Ask for the HUD settlement cost booklet "Shopping for Your Home Loan" from your lender.
Step 4. Shop for a loan.
To find a lender and loan terms that best meet your needs, you should learn some of the terminology used, what can help you, and what can cost you. To help guide you in shopping for the right loan, check out this HUD booklet by clicking http://www.hud.gov/buying/booklet.pdf
Would you comparison shop in only one store? To find mortgage lenders doing business in your area that are approved by FHA, go to
http://www.hud.gov/ll/code/llslcrit.cfm
Step 5. Check out Home-buying Programs
Your lender usually knows about any local programs offered to first time homebuyers, but it is always good to check for yourself. One avenue to do so is to see what programs have been identified by local HUD offices. Click here to see what might be available in your state: http://www.hud.gov/buying/localbuying.cfm
Step 6. Finding a qualified real estate agent to help you buy your home
Nearly 75% of today's home are found and purchased through the Internet. This does not eliminate the need for you to select a qualified real estate agent to represent you. A qualified real estate agent provides the best security for any buyer in ensuring a great home purchase. You should expect your agent to:
  • Develop a preliminary evaluation of a property (including both pros and cons) and provide an explanation of comparative property values in the area.
  • Properly advise you on price and other advantageous negotiating options and prepare a purchase offer.
  • Make a timely and complete offer on the home you are interested in buying.
  • Notify you immediately regarding offer acceptance, offer rejection, or counter offers.
  • Arrange inspections, warranties, and any certifications that might affect the value of the property.
  • Accompany you on a final walk-through of the property before closing.
  • Attend the closing and provide assistance to you and your attorney at the closing.
Remember, your real estate agent can guide you, but only you know the home that is right for you.
To locate a real estate agent in your area, click here to find agents you may wish to represent you: Find An Agent
Step 7. Get a Home Inspection
What you see may be what you get, but what about what you don't see? It pays to engage the trained eyes of a home inspector to make sure you fully understand the condition of the property you are buying. To learn more about home inspections, check out the information at this site: http://www.pueblo.gsa.gov/cic_text/housing/inspection/home.htm
Step 8: Obtaining homeowners insurance
Homeowners insurance is more than just a good idea. Your lender will require that you carry sufficient coverage to at least pay off your mortgage amount if your home were severely damaged.
Step 9. Closing
One of the most exciting moments of your life is actually closing on the purchase of your new home. To understand the process and remove stress from the event, try reading some background information provided at this website: http://www.hud.gov/offices/hsg/ramh/res/sfhrestc.cfm
Congratulations, you made it through the 9 steps! The materials referenced along the way are not the only sources of information for you. Check out other "Tools" available to you on the HomeTelosFIRST Homepage.
 About Title Insurance
If you borrow money to buy a home or property, a lending institution will probably make you buy a title insurance policy to protect its interest. As a consumer, it's in your best interest to be well-informed about title insurance, how it works, and what to look for in title insurance.
What is Title Insurance?
Title insurance helps provide home buyers and/or mortgage lenders protection against losses resulting from unknown defects in the title to your property that existed before the closing of a real estate transaction.
Those unknown "deficits" could be:
  • outstanding liens on the property (e.g., unpaid real estate taxes by a prior owner).
  • encumbrances (anything that might hinder the owner's right of ownership; e.g., errors or omissions in deeds, undisclosed errors, fraud, forgery, mistakes in examining records).
These deficits can result in additional costs in the future or even invalidate a home buyer's right of ownership in the property. They might also invalidate the lender's security interest in the policy. Title insurance policies cover the insured party for any covered losses and legal fees that might arise out of such problems.
What Do Title Insurance Agents/Companies Do?
Title insurance agents/companies search public records to develop and document the chain of ownership of a property. If any liens or encumbrances are found, the title company might require a home buyer to eliminate them before issuing a title policy. Title insurance agents might also hold money in escrow and perform closing services for an additional fee.
How Does Title Insurance Work?
Title insurance policies are indemnity policies - typically, they protect against losses arising from events that occur before the date of the policy, which is the date of closing. This is different from other types of insurance policies, such as auto or life insurance, which protect against losses resulting from accidents or events that occur after the policy is issued. A title policy is usually paid for with a one-time premium that is handled at the closing of the real estate transaction.
Who Needs Title Insurance?
Lenders - If a mortgage is obtained in order to purchase property, nearly all lenders require that a home buyer purchase the lender's title insurance policy for an amount equal to the loan. A lender's policy is issued to a mortgage lender. The policy gives the lender protection from covered losses arising from any defects in the title that have become known only after the insured property has been financed. The lender's insurance policy will remains in effect until the amount financed has been repaid, the property is resold or refinanced.
Owners - Either a home seller or home buyer may buy an owner's policy. In many areas, sellers pay for owner title policies as part of their obligation in the transfer of title to the home buyer. The question of who pays for the owner's policy can be negotiated as part of a purchase agreement.
An owner's policy is issued to a home buyer. It protects the buyer from covered losses arising from any unknown defects in the title that existed before the purchase which become known only after ownership of the property is acquired. Your owner's policy remains in effect as long as you own or maintain an ownership interest in the insured property.
Marketing and Sales Practices
Although home buyers are free to shop around for a title agent or a title insurer, many home buyers do not. Because buyers are unfamiliar with title insurance, they tend to let lenders and/or real estate professionals who are parties to the home buying transaction make that decision.
Conflicts of interest can occur if the entities making the decision have a financial interest in a title agency/title company. Section 8 of the federal Real Estate Settlement Procedures Act (RESPA) prohibits people involved in a real estate settlement process from giving or accepting kickbacks or referral fees.
Key Points to Remember
  • Although a title insurance company will most likely be offered to you during the mortgage transaction process, you are not obligated to use it.
  • Be sure to ask what services and fees are included in the title insurance premium and any fees (e.g., cost of search and examination, closing services, etc.) that may be billed to you separately.
  • A lender policy only covers a lender's loss. It does not protect a home buyer from losses arising from defects in title. Talk with a local, reputable real estate attorney not involved in the real estate transaction to find out if it is in your best interest to purchase an owner's title insurance policy.
  • Make sure to ask about any available policy discounts. Premium discounts might be available if both owner's and lender's policies are purchased from the same title insurance company or if you are refinancing your loan. You might also ask about "reissue" or "substitution" rates.
  • Read all title insurance documents you get at closing, including the fine print. Ask questions if any items are unclear; or if any terms, conditions or amounts are not in line with something you may have been told before closing.
  • If you believe that a title/closing agent or title company in a real estate closing/settlement transaction is not following standard business practices (e.g., unexpected or undocumented fees, or requesting that you sign documents relating to the real estate or closing transaction that are not accurate), immediately report this to your State Department of Commerce.
The U.S. Department of Housing and Urban Development Web page http://www.hud.gov/offices/hsg/ramh/res/sc2sectf.cfm is a good source of additional information about title insurance.
 FHA's Property Rehabilitation (203K) Finance Program
FHA is a government agency that offers mortgage insurance to lenders to encourage them to help finance loans for moderate income borrowers, borrowers with some blemishes on their credit history, and homebuyers who do not want to pay a large downpayment for the purchase of their home.
FHA does not lend money. It does though offer different types of mortgage insurance to lenders, to help them offer financing which can meet the unique needs of some homebuyers. FHA's Property Rehabilitation Program, often referred to as "203k" is an example of this type of program.
The 203(k) program is FHA's primary financing program for homebuyers who want to buy a property that needs extensive repairs.
When buying a house that needs repairs, homebuyers usually have to follow a complicated and costly process. Short-term purchase and improvement loans often have relatively high interest rates, short repayment terms and a balloon payment.
However, Section 203(k) offers a solution that helps both borrowers and lenders. These loans cover both the purchase and the repair of a property. Section 203(k) insured loans save borrowers time and money. They also protect the lender by allowing them to have the loan insured even if the value of the unrepaired property is less than the amount of the mortgage loan.
The extent of the repairs may range from relatively minor (though it must be at least $5000 in cost) to virtual reconstruction: a home that has been demolished or will be razed as part of rehabilitation is eligible, for example, as long as the existing foundation system remains in place.
Section 203(k) insured loans can finance the rehabilitation of the residential portion of a property that also has non-residential uses; they can also cover the conversion of a property of any size to a one- to four- unit structure. The types of improvements that borrowers may make using the Section 203(k) financing include:
  • Structural alterations and reconstruction.
  • Modernization and improvements to the home's function.
  • Elimination of health and safety hazards.
  • Changes that improve appearance and eliminate obsolescence.
  • Reconditioning or replacing plumbing; installing a well and/or septic system.
  • Adding or replacing roofing, gutters, and downspouts.
  • Adding or replacing floors and/or floor treatments.
  • Major landscape work and site improvements.
  • Enhancing accessibility for a disabled person.
  • Making energy conservation improvements.
Not all FHA lenders offer 203k financing. To find a lender that offers 203k mortgages, go to http://www.hud.gov/ll/code/llslcrit.cfm, and select the 203k option at the bottom of the page.