9. FHA Loan Products

Q: What is a 203(b) loan or 203(k) loan?

A 203(b) loan is the most commonly used FHA program. It offers a low down payment, flexible qualifying guidelines, limited lender's fees, and a maximum loan amount.

A 203(k) Loan is an FHA loan that enables the homebuyer to finance both the purchase and rehabilitation of a home through a single mortgage. A portion of the loan is used to pay off the seller's existing mortgage and the remainder is placed in an escrow account and released as rehabilitation is completed. Basic guidelines for 203(k) loans are as follows:

• The home must be at least one year old.
• The cost of rehabilitation must be at least $5,000, but the total property value - including the cost of repairs - must fall within the FHA maximum mortgage limit.
• The 203(k) loan must follow many of the 203(b) eligibility requirements.
• Talk to your lender about specific improvement, energy efficiency, and structural guidelines.

Lender Rate Match Tip: While FHA loans used to be one of the best options for consumers needing a low down payment, or those with credit issues, there are now many conventional loans that can help consumers with these issues. Use Lender Rate Match to learn about loan options for you. To learn about FHA loans, contact an FHA lender.

Q. What is an energy efficient mortgage (EEM)?

The Energy Efficient Mortgage allows a homebuyer to save future money on utility bills. This is done by financing the cost of adding energy-efficiency features to a new or existing home as part of an FHA-insured home purchase. The EEM can be used with both 203(b) and 203(k) loans. Basic guidelines for EEMs are as follows:

• The cost of improvements must be determined by a Home Energy Rating System or by an energy consultant. This cost must be less than the anticipated savings from the improvements.
• One- and two-unit new or existing homes are eligible; condos are not.
• Financed improvements may be the greater of 5% of property value or $4,000. The total must fall within the FHA loan limit.