CHAPTER FOURTEEN. 30
TRACING HUD/FHA REFUNDS STEP BY STEP
41
Chapter Two:
Where The Money
Comes From
The Federal Housing Administration is part of the U.S. Department of Housing and Urban
Development. The FHA has a mortgage insurance program that makes housing available to
individuals of any income bracket, with or without military service. With FHA backing the
mortgage loan, the home buyer can purchase a home with as little as 3% to 5% down. At the
present time FHA will guarantee a home purchase up to $100,000 for a single family residence.
As mentioned earlier, the FHA does not actually lend the money to purchase the home. The
FHA stands behind the mortgage loan, in the event the homeowner does not repay the mortgage,
FHA will repossess the home and sell it to recover the loss.
The way the program works is simple, in addition to the price of the home, each home buyer
contributes a small amount of money to a pool. Each borrower of HUD/FHA pays 1/2 percent of
the loan amount or 1/2 point. Example, on a $50,000.00 loan the amount would be $250.00. On a
$100,000 loan the amount would be $500.00.
This pool can be considered a kind of insurance premium. The 1/2 percent goes into the
FHA/HUD shared distribution section which covers any losses due to foreclosures of any
FHA/HUD backed loans, and a few other expenses. In case of foreclosure, the borrower forfeits
any refund due to them. However, in the case of a good loan, the money then sits drawing no
interest until the loan is paid off and the borrower is contacted for a refund.
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