FHA Foreclosures

Fha Foreclosures

Definition

Foreclosures that are being sold by the Federal Housing Administration. This agency provides backing for mortgage loans through mortgage insurance to qualified borrowers.

What is FHA?

US Department of Housing and Urban Development Logo

Understanding the dynamics of the real estate industry can be difficult, especially with all of the abbreviations. FHA foreclosures are one area of the real estate industry where people are able to get great deals on homes, but you have to understand the process of buying one of these properties.

FHA stands for Federal Housing Administration. This part of the U.S. Government gives mortgage insurance on loans that are made using an FHA-approved lender. FHA may apply to both single family and multi-family properties including manufactured homes and even hospitals. FHA has insured more than 34 million properties in the United States since it began in 1934.

The reason that FHA exists is to give lenders some protection against losses that occur when a homeowner defaults on their mortgage. This makes lending money a less risky proposition for the mortgage lender because FHA will pay them a claim if the homeowner stops paying their mortgage. Of course, FHA requires that these loans follow specific guidelines in order to qualify. The borrower also has to meet certain obligations to get an FHA loan, although they are among the easiest loans to qualify for these days.

The attraction of an FHA loan is that they don't require a large down payment. In addition, they are quite loose when it comes to payment ratios and calculating a person's household income. There is a monthly cost of mortgage insurance which is included in the borrower's payment. After a period of time, that cost will be removed from the loan, however. Typically, that happens around the 5 year mark or when the balance of the loan is less than 78% of the value of the property.

One interesting part of FHA is that it is not taxpayer funded. It operates using its own income that is self generated from the mortgage insurance premiums paid by borrowers. The program helps a lot of communities as it assists people in getting into homes and adds construction jobs to the community.

When Does an FHA Foreclosure Occur?

FHA foreclosure occurs when a borrower stops paying on their underlying mortgage payment. Many times, this might be because the person has experienced some financial crisis such as a divorce, job loss or medical problem. There are some steps that a borrower can take in order to minimize the likelihood that their property will go into foreclosure. For instance, they should contact their lender by phone or letter immediately upon missing the first payment. This is because the lender will likely contact them by the time the second payment is missed anyway.

Because of the recent economic downturn, many lenders are much more willing to assist a borrower who is in trouble. However, by the third month the borrower is likely to receive a demand letter in the mail stating that they have to pay the specified amount or make some kind of arrangements within a certain period of time. Otherwise, the lender has the right to begin the foreclosure process.

Once a property goes into foreclosure, it will be sold at a sheriff's or public trustee's sale. Foreclosure laws vary from state to state, so the actual process can be quite different. Some states also have a redemption period.

FHA Limits

It is important to note that the FHA limits on particular loans vary based upon the type of housing, the state and the county where the property is located. For that reason, it's important for borrowers to check with a qualified lender who can look up the limits to their specific subject property.

FHA Loan Types

There are several different types of FHA loans. Here is a quick breakdown of different kinds of lending as it relates to FHA:

  • Fixed rate: An FHA fixed-rate loan is commonly referred to as a 203(b) within the mortgage lending industry. It is often a top choice among first-time home buyers as it lets them finance up to 97% of the home making the down payment costs very minimal. Because first-time home buyers are often cash-strapped but have good credit, this type of loan is very popular.
  • Adjustable rate: Another sought after FHA loan product is called an adjustable rate mortgage. Many times, this loan is suited specifically for people who are from low to moderate income households. It allows buyers to get into a home who otherwise might not be able to afford it. The basic premise is that the down payment is still low, just like the fixed rate loan, but the interest rate is adjustable. It can vary up or down, and the terms are spelled out in the loan paperwork.

There are also some other types of FHA loan products such as the energy-efficient mortgage, a graduated payment mortgage and even FHA loans that will allow borrowers to purchase condominium units. The graduated payment mortgage works with borrowers who need to keep the upfront costs to a minimum. The monthly mortgage payment can be specifically suited to a borrower's needs so that their payment goes up gradually over a 5 to 10 year period as their earning power increases.

The energy-efficient mortgage is a program that allows borrowers to lower their monthly power bills by combining the cost of rolling energy-efficient improvements into their FHA loan or refinancing. There is also a type of loan called a growing equity mortgage which is specifically geared toward people who feel that their income will increase over time.

Where Can I Find FHA Foreclosures?

Our database is compiled of a plethora of foreclosed homes for sale across the country using specialized, advanced search tools. Not only will you be able to find FHA foreclosures, but distressed properties, REO homes and a multitude of various government foreclosures to suit your needs. Our database is a clearinghouse for first-time home buyers, real estate investors and anyone else who is looking for the most comprehensive information related to foreclosures all over the country.

FAQ about FHA Foreclosures


  • Generally speaking, yes. The FHA 203k Refinance Loan allows you to refinance any property within six months after the purchase if you own the property outright - which you would if you paid for it in cash at auction.

  • You can buy homes, foreclosed properties, and short sales with an FHA - insured loan, but FHA has to sign off on the condition of the property before they approve the purchase. Foreclosures and short sales can fail this step because they sometimes are not well maintained by their previous owners. There are also FHA loans that allow you to buy fixer-uppers.

  • It depends on state and local laws (and whether or not the foreclosure is judicial or non-judicial). An FHA foreclosure could take as little as 90 days, but often takes 90-120 days, depending on the state. Safeguards in certain states for foreclosed homeowners, as well as loan modification programs, could double the time it takes for the foreclosure to go through.

  • You are first eligible for a FHA home loan with a previous foreclosure on your record three years after the home's title was transferred to the new owner. This assumes that you have made no late payments on your obligations after the foreclosure. It may be difficult to get approved, but you are technically eligible after the three-year mark.

  • Currently, the Federal Housing Administration (FHA) does not provide home loans for investment properties. Guidelines state that the holder of the loan must occupy the property that is being financed by the FHA loan. Investors can finance investment properties with conventional loans from lenders, but FHA will not guarantee them. FHA loans are intended for owner occupants who intend to live in the property being purchased.

  • Approval timelines for FHA loans vary, depending on the circumstances of the situation. There are many factors that play a role in determining how long it takes to approve an FHA loan. Demand, for example, could create a backlog of applications that need to be processed, and each application takes time. There may also be unforeseen problems with a loan application that need to be sorted out. Additionally, some lenders take longer than others. Typically, a FHA loan could be approved in as little 48-72 hours, although most take 1-2 weeks.

  • The Federal Housing Administration (FHA) is an agency that is in the Department of Housing and Urban Development. Its purpose is to insure home loans made by private mortgage lenders as a way of providing for affordable housing for as many Americans as possible. FHA also works to stabilize the mortgage market and improve housing conditions by requiring certain standards prior to guaranteeing a loan. Through the FHA, a potential homebuyer is more likely to have a home loan approved by a private lender. A homebuyer can also obtain a home for a relatively small down payment of 3.5% instead of more costly down payments of 5-20%.

  • The best way to apply for a FHA loan is to go to the official website and find an FHA-approved lender who deals in FHA products. These lenders will be able to work with you to find the right type of loan or insurance product for your purposes, and can also help you find a loan for any amount up to your maximum allowable amount. FHA lenders use a formula designed to estimate the maximum allowable amount for your loan, which depends on your ability to pay, debt-to-income ratio, geographic area, and type of loan being pursued. You can obtain a loan for any amount up to and equal to this maximum allowable amount.

  • Yes, there are ways you can obtain a FHA-backed mortgage for homes that you already own. This is achieved through FHA refinancing. There are two types of financing in this instance: FHA Cash-Out Refinancing and FHA Streamline Refinancing. A Cash-Out refinance allows you to take out another mortgage for more than you currently owe on the property as a way to refinance your existing mortgage. A Streamlined refinance lets you reduce the interest rate on the home loan you currently hold, often without a property appraisal. To become eligible for these types of refinancing, the owner of the home must have the home as a primary residence, and must be at least six months into ownership of the property before applying.

  • An FHA secure loan, also called an FHASecure refinance loan, is a loan that is intended to help homeowners with current mortgages refinance into an FHA mortgage loan, particularly if the current loan is an adjustable rate mortgage (ARM). It does not matter if you are currently delinquent on your loan, which is a big difference from a regular FHA loan. The lack of automatic disqualification is the key distinguishing difference between an FHA secure loan and a regular FHA loan and can be immensely helpful to distressed homeowners who are behind on their payments due to adjustable rate mortgages.

  • Yes, a borrower may have two FHA loans at the same time, under certain circumstances. If the loan holder's family increases in size and a new home must be purchased (and you have either 25% equity in your home or have paid it down to 75% loan-to-value), you could qualify for a second loan. You can also obtain another FHA loan if you are forced to relocate from your current residence, or are vacating a property that is owned jointly and the other co-borrower is staying in the property. Divorces, for example, often result in this situation, with one spouse leaving to purchase a new home. Additionally, those who are on non-occupant co-borrower loans (because they co-signed for someone else) can take out a second FHA loan of their own.

    Those are the exceptions that allow you to have two FHA loans at the same time. All exceptions must be confirmed and validated by an FHA official or appraiser.

  • Yes, depending on the circumstances of your situation, you may still be eligible for an FHA loan if you have filed for bankruptcy. There are two types of bankruptcy for individuals: Chapter 7 and Chapter 13. If you filed a Chapter 7 bankruptcy, you have to be at least two years removed from having your debts discharged, have stable employment, and have what the agency considers good credit. Specific information can be obtained by talking with your lender. If you filed or are currently in a Chapter 13 bankruptcy, you have to have a history of making credit payments for at least one full year. You must also have stable employment and be capable of making mortgage payments on time. Additionally, your bankruptcy court trustee must supply FHA with written approval. FHA also requires you to supply them with a written explanation of the bankruptcy, to be attached to the loan application.

  • Yes, the maximum loan limits for FHA loans do vary depending on geographic location. Currently, the highest geographic limits are $625,500 in high-cost areas (areas in which the median home value and cost of living are in excess of the national average). In low-cost areas, the limit could be as low as $160,000. Lenders can help you confirm the maximum allowable amount for you depending not only on geographic location, but also on other factors (such as ability to pay and income-to-debt ratio). Limits also vary based on what is called the GSE limit, or, the limit that applies to Fannie Mae and Freddie Mac. If the GSE limit goes up or down, so does the FHA limit.

  • The Mortgage Insurance Premium (MIP) can be combined or folded into the loan (financed) or paid in cash. You can also pay for MIP with a seller's credit. Currently, the FHA charges a MIP of 1.75% (upfront) and 0.5% to 0.55% (monthly). MIP is the way that FHA guarantees the loan; it does not rely on taxpayer money in order to back home loans with private lenders. Instead, MIP from borrowers goes into an MIP fund.

  • Yes, in some cases income you collect as rent on your current property can be used for a FHA loan, which has to be applied to your primary residence. As long as the loan is being applied to your primary residence, any source of income – be it from rent or property sales or other sources in addition to your normal employment – can be used to establish eligibility for your home loan. Of course, there are stipulations, and you have to supply documenting evidence, usually in the form of two years' tax returns and a Schedule E form. Contact your lender and inquire about your specific circumstances; they can tell you if the FHA would allow your rental income – either in whole or in part – to help you qualify for a loan.

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