FHA Mortgage Loan Program For Older, Declining Areas

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Section 223(e) provides mortgage insurance to enable people to rehabilitate or purchase housing in declining urban areas that are older. Section 223(e) can be used only to supplement other HUD mortgage insurance programs.


By lowering some of the initial costs of their mortgage loans, HUD's Federal Housing Administration (FHA) administers mortgage insurance programs that help moderate and low income families become homeowners. FHA mortgage insurance protects the lender against loan default on mortgages for residential properties that meet certain minimum requirements. FHA mortgage insurance also encourages lenders to make loans to otherwise credit worthy projects and borrowers that might not be able to meet underwriting requirements that are conventional.

Mortgage insurance provided by Section 223(e) helps potential borrowers finance a project or home that may be otherwise difficult to finance because it is located in an declining urban area that is older. HUD places the obligation under the Special Risk Insurance Fund by agreeing to insure the property under this program, which is separate from the General Insurance Fund (which finances most of its multifamily mortgage insurance) and the Mutual Mortgage Insurance Fund (which finances most of its single-family mortgage insurance). This allows HUD to manage more effectively the greater risk supposed to be inherent in these loans, thus lowering the insurance premiums for the vast majority of borrowers.

Section 223(e) helps to meet the need for adequate housing for moderate and low income families by insuring lenders against the risk of default on mortgage loans to finance the rehabilitation, purchase, or construction of housing in declining, older, but still viable urban areas where requirements for other mortgage insurance can't be met. The property must be a acceptable risk under mortgage insurance rules and be in a reasonably viable neighborhood.

This is not a separate program and it supplements other HUD mortgage insurance programs. Mortgages for housing eligible under Section 223(e) may be insured under any one of several HUD programs. The terms of the loan vary according to the FHA/HUD program under which the mortgage is insured. The down payment, the maximum amount of the loan, and other mortgage terms vary according to the HUD program under which the mortgage is insured. Under the applicable HUD program, fees are established and the mortgage insurance premium is 0.5 percent per year on the outstanding loan balance.

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