The program
After you close
When the payments start, who they go to, what you can and cannot do with the home, and how you eventually own it.
When payments start
Monthly housing payments begin the month immediately following the closing of the loan. If a new month begins within 7 days of the month of closing, the first payment is collected at closing instead.
The first payment and every ownership equity agreement payment after it must be received by the master servicer. There should be no servicing transfer gap that affects payments due or payments received.
Source: Matrix 7.1, 7.2.1.
What the payment covers
| Component | Notes |
|---|---|
| Principal | On the 40-year schedule. This is what reduces the balance you have to clear to take title |
| Interest | The FHA loan rate plus the program margin |
| Mortgage insurance | FHA MIP on the agency's loan |
| Property taxes | Escrowed. They move, and your payment moves with them |
| Homeowners insurance | Escrowed. The agency's policy, with the agency as named insured |
| HOA dues | If the home is in one |
| Program fee | Monthly administration fee to the agency |
What you may and may not do
You may live in it and control it like an owner
The agreement gives you possession and an equitable interest in the property, with the right to use it the way a reasonable homeowner would.
You may rent the other unit, if there is one
If the home has more than one unit, the vacant unit can be rented. That rent even counts toward qualifying income at 75% of the market value assessed by the FHA appraiser.
You may not stop living there
This is an owner-occupied program and the unit you occupy has to remain your primary residence.
You may not transfer, sell or assign without written consent
Do not assume you can list it like a normal home. Talk to the agency first.
You carry the repairs
Maintenance, repairs, and every ongoing cost of the property, plus the minor defects from the inspection within twelve months of closing.
The three ways out
Inside the agreement
You pay monthly. The price stays where it was.
Assume the FHA loan
You take over the existing loan from the agency
Refinance into your own loan
You qualify on your own and replace the financing
Pay off the option or price
You clear the balance in full
Title in your name
No shared appreciation. The increase in value is yours.
How you take title
Three ways, and the Guidelines name all three: assume the FHA loan from the agency, refinance into your own financing, or pay off the option or purchase price.
Whichever you use, the price was fixed when the contract was signed. There is no shared appreciation and no shared equity once the underlying option or purchase price is paid, so an increase in value between then and now belongs to you.
Source: Guidelines section 1.
And if you do not get there
If you choose not to exercise the purchase option, or you cannot pay the agreement in full, you may forfeit the payments and purchase credits you accumulated. Default can end the purchase option.
This is the risk the whole program turns on, and it is why we put it on its own page rather than in a footnote.
Read the full risk page
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