The Difference Between FHA and HUD Loans
By Terry Painter/Mortgage Banker, Author of The Encyclopedia of Commercial Real Estate Advice – Wiley Publishers, Member of the By Terry Painter/Mortgage Forbes Business Council
The Difference Between FHA and HUD is that FHA oversees and guarantees low down payment and low credit score loans for moderate to low-income homeowners. HUD oversees FHA, but primarily sets guidelines and guarantees multifamily loans of 5 units or more for rental property investors. The Federal Housing Administration (FHA) came first in 1934 and became a part of HUD in 1965.
FHA’s Purpose
FHA’s mandate is to make home ownership possible for first time homeowners and lower wage earners by having much lower requirements than conventional lending programs, keeping down payment and closing costs low, and even allowing some gift funds to be used. You can even use a non-occupant co-borrower to help qualify. And if you are interested in being a landlord and Buying Multiple Houses with a HUD/FHA Loan, you are allowed to buy a 2-unit to 4-Unit building – occupy one and rent the other units out.
HUD’s Purpose
HUD’s mandate is to create more quality housing in America. It is a misunderstanding that HUD only encourages low-income housing. They equally encourage market rent housing. HUD oversees low-income housing programs such as section 8 vouchers, and public housing. They also work with developers who earn tax credits in exchange for creating more affordable housing. HUD also makes sure that HUD Multifamily Loan Rates, are some of the lowest long term fixed commercial rates in America. Click on this link to learn more about How Does HUD Define Multifamily
Other perks are Non-Recourse Financing, which means the borrower doesn’t have to personally guarantee the loan and risk losing any of their personal assets if there is a default. Also HUD Multifamily Loan Requirements are easier to qualify for than conventional loans.
Advantages of FHA Residential Loans
| *Lower Credit Scores Acceptable | *Use Gift Towards Down Payment |
| *Short Bankruptcy Waiting Period | *Very Low Closing Costs |
| *From 3.5% to 10% Down | *Non-Occupant Co-Borrowers Okay |
| *Low Debt to Income Ratios | *Low FHA Interest Rates |
| *No Minimum or Maximum Income | *Shorter Foreclosure Waiting Period requirements. |
| *Co-Signers Allowed for Qualification | *Include Rehab Funds in the Loan |
Advantages of HUD Multifamily Loans
Property Types: Multifamily, Mixed-Use, Senior Housing, Healthcare Properties
| *Highest LTV at 80 – 90% | *1.176 DSCR Market Rents |
| *Cash Our for Any Reason | *1.15 DSCR Affordable Rents |
| *Unlimited Loan Size | *Same Rate Construction Roll over to Perm |
| *Low 35-Year Fixed Rates | *No Global or Debt to Income Ratio |
| *40-Year Fixed Rate New Construction | *Assumable |
| *No Tax Returns Required | *Non-Recourse |
| *Supplemental Financing Available | *Lowest Long Term Fixed Rates |
| *35-Year Amortization Existing Property | *40-Year Amortization New Construction |
*Rate can be Lowered in the Future with a Loan Modification
If you are wondering What is the Highest LTV Multifamily Loan, HUD rules! Click on this link for more on the Advantages of HUD Multifamily Loans and on this link to learn just about everything you might need to know about HUD Multifamily Loans.
And here’s a HUD Multifamily Loan Glossary with 74 terms defined for a fast look up.
Do FHA and HUD Lend Money?
Most people certainly think FHA and HUD lend money that comes from taxpayers, but this is incorrect. What they do is oversee the underwriting guidelines for approved lenders who make the loans. Most importantly, FHA and HUD guarantee the loans with the full faith and credit of the United States Government. This allows the loans to be bundled and sold as very low credit risk Gennie Mae bonds to investors on Wall Street. Money raised from the sale of these bonds is what funds FHA and HUD loans.
FHA and HUD Loans Have Mortgage Insurance
All FHA and HUD loans have mortgage insurance paid with the loan payment. Most think this is because they are low down payment loans. But much more than that, the mortgage insurance ensures that in case of a default on the loan, the loan is paid off in full. It is the mortgage insurance that makes it possible for the Gennie Mae Bonds to have such a high credit rating, and for the funds for the loan to be raised on Wall Street.
FHA residential loans have a mortgage insurance premium set at between .5% to 1.00% of the principal balance. HUD Multifamily loans have mortgage insurance set at .25% for green buildings, and .60% for standard buildings.