FHA Single Family Title II

An FHA Single Family Title II is a type of mortgage. Specifically, it is a mortgage issued by the Federal Housing Administration (FHA) under Title II of the National Housing Act of 1934 for a single family. These mortgage loans were designed to encourage lenders to issue mortgages during the Great Depression, but they still form a large part of the mortgage market today.

You can’t apply for Title II loans directly from the FHA. Instead, you’ll need to find a lender that offers mortgage loans that are FHA-backed through the Title II program. The application process is similar to that of a standard mortgage loan, though the lender will check to be sure that the home you're buying meets Title II requirements.

In this article, we’ll take you through the history of Single Family Title II mortgage loans, how you can qualify for one, and how to apply for one.

Key takeaways

  • An FHA Single Family Title II is a type of mortgage insured by the FHA under Title II of the National Housing Act of 1934 for a single family.
  • Title II loans are a low-risk proposition for lenders, because the government insures them against a borrower defaulting on the mortgage. In other words, FHA Title II loans (whether for a single-family home or another type of property) have favorable conditions for consumers with less-than-perfect credit histories.
  • You can’t apply for a Title II loan directly from the FHA. Instead, look for a lender that offers this type of mortgage. Your lender will check that you qualify for a Title II loan.

Understanding FHA Single Family Title II Mortgage Loans

Both Title II mortgages and the Federal Housing Administration (FHA) itself were created by the National Housing Act of 1934. At that time, the Great Depression was at its peak, and by 1933 as many as 1,000 homeowners were defaulting on their mortgages every day. Fully half of all mortgages in the U.S. were in arrears. Because of the risk of default, banks were very hesitant to lend money on mortgages—most required a 50% down payment and full repayment within five years. Through the National Housing Act, the federal government encouraged banks to issue mortgages by insuring lenders against default. If a borrower defaulted, the FHA would pay the lender a specified claim amount.

Two types of loan programs were created. Title I loans allowed homeowners to borrow money to rehabilitate their house. Title II loans—the type we are discussing here—are for buying property. There are several types of property that qualify, such as single-family homes, condominiums, manufactured homes, and trailers. The home must have a permanent foundation, meet minimum size requirements based on its residence type, and be structurally sound and fit for a family residence.

There have been some changes since 1935. The FHA became part of the Department of Housing and Urban Development (HUD) in 1965. While HUD guarantees some loans on its own—namely Section 184 loans, which are available only to Native Americans—it is the FHA to which most single-family homebuyers typically look. Today, most single family Title II mortgages are issued through the 203(b) Mortgage Insurance Program.

HUD and the FHA don’t actually lend you money for a mortgage. Instead, you get a loan from an approved lender, like a bank or another financial institution. Depending on the loan, HUD or the FHA guarantees it and pays the lender in case of default.

How To Get a Single Family Title II Mortgage

Since they're insured by the government against a borrower defaulting on the mortgage, Title II loans are a very low-risk proposition for mortgage lenders. This means that FHA Title II loans (whether for a single-family home or another type of property) have favorable conditions for consumers whose credit histories are less than perfect.

Title II loans are designed for borrowers who may not be able to access enough cash for a big down payment and who have a lower-than-average credit score. In general, borrowers will find that an FHA loan is much easier to obtain than a standard mortgage. Individuals who have gone through bankruptcy or foreclosure are eligible for an FHA loan, depending on how much time has passed and whether good credit has been reestablished.

With an FHA Title II loan, you can borrow up to 96.5% of the value of a home. This means that you’ll need to make a down payment of just 3.5%. You’ll need a credit score of at least 580 to qualify for that, though. If your credit score falls in the 500–579 range, you can still get an FHA loan, as long as you can make a 10% down payment.

There are some other differences between an FHA Title II loan and a standard mortgage. All FHA borrowers must pay a mortgage insurance premium (MIP) to the FHA—an up-front payment as well as an annual payment. Borrowers pay 1.75% of the loan balance—along with annual MIPs, which are paid monthly and based on the total value of the loan. Borrowers who can put down 10% or more pay these premiums for 11 years. Anyone who makes a down payment of less than 10% must make these premium payments for the duration of their mortgage.

You can’t apply for a Title II loan directly from the FHA. Instead, look for a lender that offers this type of mortgage. Your lender will check that you qualify for a Title II loan.

What Is an FHA Loan?

Federal Housing Administration (FHA) loans, including those issued through Title II, are guaranteed by the government and designed for homeowners who may have lower-than-average credit scores and aren't able to come up with enough money for a more substantial down payment. FHA mortgages are issued by FHA-approved lenders.

Do I Qualify for an FHA Title II Loan?

To apply for a Title II loan, you need to be able to prove two years of steady employment or stable income, and no past-due federal liens, such as student loans or tax debts. Any court judgments against you must be paid, and all child support must be current. Your credit must have been stable or improving for at least the previous 12 months, and any bankruptcy filings must have been discharged for at least 24 months. Any foreclosures in your past must be at least three years ago, and you must have at least 12 months of on-time rent or lease payments.

Is an FHA Loan a Good Option for Me?

It depends on your circumstances. A Title II loan may be easier to qualify for than a standard mortgage, especially for people with limited or poor credit history. On the other hand, other government-sponsored mortgage loan options may be available for you. There are two other types of government agency-insured loan programs—U.S. Department of Veterans Affairs (VA) loans and U.S. Department of Agriculture (USDA) loans—so it’s important to research all potential options.

The Bottom Line

An FHA Single Family Title II is a type of mortgage. Specifically, it is a mortgage insured by the FHA under Title II of the National Housing Act of 1934 for a single family. These loans were created by the National Housing Act of 1934.

Title II loans are a very low-risk proposition for mortgage lenders, because the government insures them against a borrower defaulting on the mortgage. This means that FHA Title II loans (whether for a single-family home or another type of property) have favorable conditions for consumers with less-than-perfect credit histories.

You can’t apply for a Title II loan directly from the FHA. Instead, look for a lender that offers this type of mortgage. Your lender will check that you qualify for a Title II loan. The home you buy must also meet Title II requirements.

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  2. Federal Reserve Bank of St. Louis. "The Federal Response to Home Mortgage Distress: Lessons from the Great Depression," Pages 138-139.

  3. U.S. Department of Housing and Urban Development. "The Federal Housing Administration (FHA)."

  4. U.S. Department of Housing and Urban Development. "Minimum Property Standards."

  5. Federal Deposit Insurance Corporation. “Affordable Mortgage Lending Guide,” Page 6.

  6. Federal Deposit Insurance Corporation. "203(b) Mortgage Insurance Program," Page 1.

  7. U.S. Department of Housing and Urban Development. “Section 184 Indian Home Loan Guarantee Program.”

  8. U.S. Department of Housing and Urban Development. “Section C. Borrower Credit Analysis Overview,” Page 12.

  9. Federal Deposit Insurance Corporation. “203(b) Mortgage Insurance Program,” Pages 1-2.

  10. Federal Deposit Insurance Corporation. "203(b) Mortgage Insurance Program," Page 23.

  11. U.S. House of Representatives. “FHA Loan Affordability Act of 2019,” Page 8.

  12. U.S. Department of Housing and Urban Development. "Section D. Borrower Employment and Employment Related Income," Page 1.

  13. U.S. Department of Housing and Urban Development. "Section A. Borrower Eligibility Requirements," Page 10.

  14. U.S. Department of Housing and Urban Development. "Section C. Borrower Credit Analysis," Pages 11-12, 16, 19.