FHA Offers Discounted Loans to Homebuyers Taking A Class

The Homeowners Armed with Knowledge Program

HAWK was announced by the FHA, Federal Housing Administration, this summer. The Homeowners Armed with Knowledge program is a series of housing counseling classes, with the intent of helping more first-time borrowers understand the issues of home ownership. The hope is that with more knowledge, fewer homeowners will default on their home loans.

HAWK housing counseling and education covers how to evaluate housing affordability and mortgage alternatives, to better manage their finances, and to understand the rights and responsibilities of homeownership.

FHA Offers Discounted Loans to Homebuyers

After taking the classes, which are taken both before and after closing, mortgage insurance premiums will be cut for those borrowers. The average savings should amount to $325 a year, or almost $10,000 over the life of the 30-year loan. After two years with no delinquencies, homeowners can receive increased reductions on their mortgage insurance premiums.

There is a public comment period, which can be accessed at Hud.gov, along with more information about HAWK. The program should be in effect at the end of this year.

What is FHA Mortgage Insurance Premium?

While Fannie Mae and Freddie Mac actually buy mortgages, FHA does not. Rather, the Federal Housing Administration insures mortgages. It publishes guidelines for lenders. As they follow the guidelines, those loans qualify to be insured by FHA.

If an FHA insured loan is defaulted, the lender is repaid by FHA. This fund is primarily filled by Mortgage Insurance, charged to the borrower. There are two types of FHA mortgage insurance premiums:

1. FHA Upfront Mortgage Insurance Premium (UFMIP). This is 1.75% of the loan and is added to the loan balance at settlement.
2. FHA annual Mortgage Insurance Premium (MIP). This is a monthly installment added to your monthly mortgage payment. It varies depending on type of loan and the amount of your loan-to-value, LTV. If the loan-to-value on a 30-year loan is over 95%, the premium is 1.35%, if it’s under 95%, the premium is 1.30%.

You can see that the less money you put down, the higher risk you represent, and the higher the MIP that is charged.

By participating in the HAWK program, you get access to FHA MIP dicounts of 50 basis points off of UFMIP, and up to 25 basis points on annual MIP. This can add up over the years.

The value of the education for first-time home buyers is also a great benefit. Find out more at HUD’s website.