Home / Program Description / Mortgage Insurance for Low- and Moderate-income
Mortgage Insurance for Low- and Moderate-income Buyers (Section 221(d)(2))

This program insures mortgage loans made by private lenders to finance the purchase, construction, or rehabilitation of low-cost, one- to four-family housing.

One of the many barriers facing low- and moderate-income homebuyers is that lenders have often regarded mortgage loans for comparatively small amounts as unprofitable--in addition to the supposedly greater risk of lending to lower income buyers, the servicing and other administrative costs were thought to outweigh the potential profits. This program increases homeownership opportunities for low- and moderate-income families by insuring small mortgage loans and thus reducing the lender's risk. Traditionally, this program has been targeted to assist displaced persons, although it is used in other situations as well.

Type of Assistance:
The program insures lenders against loss from default on loans of up to $31,000 for a single-family home (up to $36,000 in high cost areas). For a larger family with five or more persons, the limits are $36,000 or up to $42,000 in high-cost areas. Higher mortgage limits apply to two- to four-family housing. The maximum amount of the loan is 97 percent of the appraised value plus closing costs. The borrower is required to make a downpayment for the difference. Displaced families are allowed to make smaller downpayments, but the minimum amount is $200. Borrowers are responsible for paying a loan origination fee (less than 1 percent of the total mortgage), appraisal and inspection fees, and mortgage insurance premiums (one-half percent). The maximum allowable mortgage term is 30 years.

Eligible Customers:
All households applying for mortgage loans below the allowable maximum amount are eligible for the program.

Households may apply for mortgage insurance through a HUD-approved lender. The lender submits the application with relevant documention on the characteristics of the property and the qualifications of the borrower to the local HUD field office for final review and/or approval.

Technical Guidance:
The program is authorized under Section 221(d)(2) of the National Housing Act, Public Law 83-560 (12 U.S.C. 1715(b), 1715(1)). Program regulations are in 24 CFR Part 221.1. These regulations, as well as applicable handbooks and notices, are available electronically through HUDCLIPS. It is administered by the HUD's Office of Insured Single Family Housing, Home Mortgage Insurance Division.

For More Information:
To learn more about this program and other financing options, homebuyers should contact a HUD-approved lender for a searchable listing of approved lenders nationwide, a HUD-approved housing counseling agency, or the toll-free FHA Mortgage Hotline, 1-800-CALLFHA. Also refer to the free fact sheet, "Homes for Low and Moderate Income Families (Mortgage Insurance)."