Posted by Dave T on April 13, 2000 at 24:43:24:
Section 203(b) is a mortgage insurance program frequently used by first-time homebuyers and other borrowers who would not otherwise qualify for conventional loans on affordable terms, as well as for those who live in underserved areas where mortgages may be harder to get.
This program provides mortgage insurance to protect lenders against the risk of default on loans to qualified buyers. Insured loans may be used to finance the purchase of new or existing one-to four-family housing, as well as to refinance debt.
A 203(b) loan has several important features:
– Downpayment requirements can be low, for example, as little as 3%.
– Many closing costs can be financed. With most conventional loans, the borrower must pay, at the time of purchase, closing costs (the many fees and charges associated with buying a home) equivalent to 2-3 percent of the price of the home. The 203(b) program allows the borrower to finance many of these charges, thus reducing the up-front cost of buying a home. This mortgage insurance is not free since borrowers pay an up-front insurance premium (which may be financed) at the time of purchase, as well as monthly premiums that are not financed, but instead are added to the regular mortgage payment.
– Some fees are limited. The 203(b) program places limits on some of the fees that lenders may charge in making a loan. For example, the loan origination fee charged by the lender for the administrative cost of processing the loan may not exceed one percent of the amount of the mortgage.