Are you looking to purchase a home and need a loan? A Federal Housing Administration (FHA) loan may be right for you since it’s a popular choice with home buyers. And now, the FHA is offering the Homeowners Armed with Knowledge (HAWK) program as way for American families – especially those with credit scores ranging from 580 to 680 – to have access to more affordable homeownership by reducing their mortgage insurance premiums (MIP).

To receive MIP savings, first-time FHA home buyers must complete a minimum of 6 hours of housing education/counseling through a HUD-approved counseling agency (your lender can recommend an agency) before signing a home purchase contract, before closing and before the 1-year anniversary of your loan in order to earn MIP reductions.

Housing Counseling Requirements

Borrowers must complete the following counseling requirements:

• A minimum of 6 hours of pre-contract counseling completed at least 10 days before signing a contract to purchase a home. At least 1-1/2 hours of the 6 hours of counseling must be individualized counseling. If you sign a sales contract before the 10-day period, you’re ineligible for HAWK. Topics covered in counseling include understanding your home purchase and the mortgage process; how to evaluate mortgage products and programs; and your rights and responsibilities as a homeowner versus a renter.
• A minimum of 1 hour of pre-closing individual counseling completed between the date of your loan application and 3 days prior to closing. This counseling covers a review of your mortgage loan information, the costs of homeownership and expectations for the closing process.
• A minimum of 1 hour of post-closing individual counseling completed within the time period of 30 days after closing and the one year anniversary of your loan closing. Topics covered in post-closing counseling include preparing household budgets, understanding your responsibilities as a homeowner, and what to do in the event of a financial calamity.

Basis Point Reductions

Upon completion of housing counseling, HAWK homeowners will get:

• A 50 basis point reduction in their upfront MIP – after completion of pre-housing and pre-closing counseling.
• A 10 basis point reduction in their annual MIP.
• An additional 15 basis point reduction at the beginning of the third year of their loan (25^th month) – if they complete post-closing counseling and can show they have made on-time mortgage payments for the prior two years.

As an example of the savings a homeowner may obtain, for an FHA loan with an average loan balance of $180,000, borrowers who participate in HAWK can save almost $325 a year in insurance costs – that adds up to about $9,800 in savings over the life of a 30-year loan.

Benefits of Housing Counseling

In recent years, the FHA has been criticized for raising its premiums, making their loans less affordable. The FHA decided to develop HAWK after studies suggested that housing counseling can lead to fewer mortgage defaults. According to a study conducted by NeighborWorks America, first-time home buyers who participate in counseling and education are 30% less likely than borrowers who don’t participate in counseling to default on their mortgage payments within the first two years after closing.

To Sign Up for HAWK

The HAWK program is expected to go live this fall. Contact the mortgage specialists at Grandview Lending at 317.255.0062 for more information. They can answer your questions about the program and help you find an FHA loan that meets your needs.

Photo credit: iStockphoto/Audrey Popov