Mortgage Insurance for One to Four Family Homes - Section 203(b)

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Summary:
Through this program, HUD's Federal Housing Administration (FHA) insures mortgages made by qualified lenders to people purchasing or refinancing a primary residence.

Purpose:

Section 203(b) is the centerpiece of FHA's single-family mortgage insurance programs—the successor of the program that helped save homeowners from default in the 1930s, that helped open the suburbs for returning veterans in the 1940s and 1950s, and that helped shape the modern mortgage finance system. Today, FHA One- to Four-Family Mortgage Insurance is still an important tool through which the Federal Government expands homeownership opportunities for first-time homebuyers and other borrowers who would not otherwise qualify for conventional mortgages on affordable terms, as well as for those who live in underserved areas where mortgages may be harder to get. These obligations are protected by FHA's Mutual Mortgage Insurance Fund, which is sustained entirely by borrower premiums.

Type of Assistance:
This program provides mortgage insurance to protect lenders against the risk of default on mortgages to qualified buyers. Insured mortgages may be used to finance the purchase of new or existing one- to four-family housing, as well as to refinance debt. Section 203(b) has several important features:

-- Downpayment requirements can be low. In contrast to conventional mortgage products, which frequently require downpayments of 5 percent or more of the purchase price of the home, single-family mortgages insured by FHA under Section 203(b) make it possible to reduce downpayments to as little as 3.5 percent. This is because FHA insurance allows borrowers to finance approximately 96.5 percent of the value of their home purchase through their mortgage, in some cases.

-- Some fees are limited. FHA rules impose limits on some of the fees that lenders may charge in making a mortgage. For example, the mortgage origination fee charged by the lender for the administrative cost of processing the mortgage may not exceed one percent of the amount of the mortgage.

-- HUD sets limits on the amount that may be insured. The current FHA mortgage limit for one-unit dwellings ranges from $271,050 to $729,750 depending on geographic location.

Eligible Participants:
FHA-approved lending institutions, such as banks, mortgage companies, and savings and loan associations, can make insured Section 203(b) mortgages.

Eligible Customers:
Anyone intending to use the mortgaged property as their primary residence is eligible to apply and be considered for an FHA insured mortgage through FHA-approved lenders.

Application:
Any person can apply for an FHA insured mortgage. The program is limited to owner-occupants. Applications are made through an FHA-approved lending institution. Borrowers can locate FHA-approved lenders through the searchable listing.

Technical Guidance:
This program is authorized under Section 203, National Housing Act (12 U.S.C. 1709 (b), (i)). Program regulations are in 24 CFR Part 203.

For More Information:
To learn more about this program and other financing options, homebuyers should contact a HUD-approved housing counseling agency and a HUD-approved lender.