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FHA Loan Facts

What does FHA have for you?

Buying your first home?
FHA might be just what you need. Your down payment can be as low as 3.5% of the purchase price, and most of your closing costs and fees can be included in the loan. Available on 1-4 unit properties.
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Want a fixer-upper?
FHA has a loan that allows you to buy a home, fix it up, and include all the costs in one loan. Or, if you own a home that you want to re-model or repair, you can refinance what you owe and add the cost of repairs - all in one loan.
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Financial help for seniors
Are you 62 or older? Do you live in your home? Do you own it outright or have a low loan balance? If you can answer "yes" to all of these questions, then the FHA Reverse Mortgage might be right for you. It lets you convert a portion of your equity into cash.
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Want to make your home more energy efficient?
You can include the costs of energy improvements into an FHA Energy-Efficient Mortgage.
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What FHA program allows me to pay my mortgage off early?
The Growing Equity Mortgage (GEM) is a graduated payment mortgage (GPM) that provides for rapid principal payment and a shorter mortgage term by increasing payments over a period of time. Scheduled increases in monthly payments are applied directly to the principal, allowing a shorter term than a GPM or a level payment mortgage. There is no interest deferral or negative amortization with a GEM. The total cost of the mortgage will be reduced because the balance is paid off sooner. Mortgages are insured under Section 203(b), 203(k), or 234(c), pursuant to Section 245(a). Requirements of the appropriate section must be met.

Does FHA have special programs for Veterans?
FHA provides additional financing opportunities to qualified veterans. The three percent cash investment requirement does not apply to borrowers who are veterans and, under certain circumstances, this veteran's preference may result in a significant reduction to the cash needed to close the mortgage.

For those eligible veterans whose property seller will pay all the closing costs, or choose to use premium pricing for settlement charges, or some combination of both, the cash settlement reduction can be substantial. This cash reduction will always be equal to the difference between the maximum loan-to-value (LTV) limit, which varies according to sales price and the State where the property is located, and 96.5 percent (the reciprocal of the 3.5 percent cash investment requirement) multiplied by the sales price (or appraised value, if less). As the amount of borrower-paid closing costs increase, the benefit diminishes.

FHA's program supplements but does not supplant the VA entitlement programs. This additional mortgage financing opportunity being provided by FHA may directly benefit:

  • Veterans with less than full eligibility for a VA guaranteed loan
  • Veterans who are co-borrowers with someone other than a spouse
  • Veterans whose eligibility is tied up until a loan that was assumed is paid off or the veteran is released from all liability
  • Veterans re-using their eligibility and whose new loan under VA may have a funding fee greater than FHA's mortgage insurance premium
What is the primary FHA rehabilitation mortgage insurance program?
The Section 203(k) Rehabilitation Mortgage Insurance Program allows individuals or families to purchase or refinance and rehabilitate a home that is at least one year old with a single mortgage loan. A portion of the loan proceeds are set aside in an escrow account and released as rehabilitation is completed.

The cost of the rehabilitation must be at least $5,000 and the total mortgage amount on the property, including the cost of the repairs, must fall within the Federal Housing Administration (FHA) mortgage limit for the area. The extent of the rehabilitation covered by Section 203(k) insurance may range from relatively minor (though exceeding $5000 in cost) to virtual reconstruction provided that the existing foundation system remains in place.

The types of improvements that borrowers may make using 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.
HUD requires that properties financed under this program meet certain basic energy efficiency and structural standards. However, luxury items and improvements that do not become a permanent part of the property are not eligible uses of a 203(k) loan.

What are the counseling requirements on an FHA reverse mortgage?
Housing counseling is required on a HECM mortgage before the borrower incurs any costs for this loan. Lenders must advise borrowers of the names of counseling agencies in the area. The counseling may be face to face or by telephone. Lenders may not recommend a specific counseling agency.

What programs are available for outlying areas?
The 203(i) Mortgage Insurance for Outlying Areas program serves individuals purchasing homes in outlying areas, where lack of a normal market could make resale in case of default difficult. This program is used to finance the purchase of proposed, under-construction, or existing one-family housing, or new farm housing on 2 ½ or more acres adjacent to an all-weather public road.

To make sure that its programs serve low- and moderate-income people, FHA sets limits on the dollar value of the mortgage loan. The current limit for a one-family home under this program is 75 percent of the loan limit under the standard FHA mortgage insurance program. This reduction in the mortgage limits makes the FHA 203(b) mortgage program more widely used when available. For more information on Section 203(i) Mortgage Insurance for Outlying Areas, please visit the referenced web site.

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