Easy savings for first-time homebuyers starting this October

Buying a house is complicated. And it's expensive. But a new program through the Federal Housing Administration (FHA) could help make your first home purchase more affordable.

The program, known as Homeowners Armed with Knowledge or FHA HAWK, helps educate first-time homebuyers about the ins and outs of homeownership while giving them the incentive of reducing some of their mortgage costs.

Keep reading to find out what this new program is all about and how it could help you buy your first home.

What is FHA HAWK?

FHA loans have long been a good option for first-time homebuyers since they only require a 3.5 percent down payment, but there's a catch. Borrowers must pay mortgage insurance premiums (MIP), which protects lenders against default when a borrower puts down less than 20 percent.

While FHA loans are appealing because they require little down, increasingly expensive mortgage insurance is driving more buyers toward conventional loans, says Darius Jenkins, loan officer with McLean Mortgage Corporation in Farifax, Va. and a teacher of first-time homebuyer classes.

But with the opportunity for borrowers to reduce their mortgage insurance premiums (MIP) through the HAWK program, FHA loans could become attractive again for homebuyers, he explains.

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And that is exactly what HAWK aims to do. An FHA initiative under the Department of Housing and Urban Development (HUD), its goal is to connect borrowers with housing counseling and servicing to help families buy homes, according to HUD's HAWK online question-and-answer resource.

By undergoing counseling and education through HAWK, first-time homebuyers can get reduced mortgage insurance premiums (MIP) at closing and could be eligible for even greater benefits post-closing, according to the FHA's Blueprint for Access report published in May 2014.

Why was HAWK Created?

Helping families buy homes, helping them get the education they need to be a successful homeowner, and bettering the FHA portfolio are some top reasons HAWK was developed, says Bridgette Russell, managing director at Home Ownership Center and Neighborhood Housing Services in New Haven, Connecticut.

After the mortgage meltdown in late 2007, FHA loans were the top mortgage of choice, but the agency wrote too many, Russell says. As a result, FHA loans had higher default rates.

So in order to protect itself from risk, the agency is now trying to get FHA loans back under control by making some changes, she explains.

One such change is the HAWK program. According to the FHA's Blueprint for Access report, the FHA is using HAWK as way to expand access and affordability while managing risk and enhancing access at the same time.

Homeowner education has proven to work, according to the Blueprint report. Delinquency rates for borrowers who have received counseling are 29 percent lower for first-time homebuyers compared to those who didn't receive counseling, and 15 percent lower overall.

Winand adds that HAWK is supposed to help people that have been overlooked in the lending industry - those who could qualify for an FHA loan but might have problems financially paying for the high MIP added onto their monthly loan.

"When FHA switched to a lower upfront MIP and a very high monthly MIP, it got expensive. And now, the monthly insurance can't be removed ever," he says.

Reducing some of those high costs to bring in more buyers is probably one of the big reasons for creating HAWK, he says.

What Are the Requirements?

The FHA HAWK pilot program will enable homeowners to save on their FHA-insured loans by completing counseling and education by a HUD-approved housing counseling agency, according to HUD.

Counseling will involve addressing your unique financial circumstances and housing issues, focusing on overcoming unique obstacles to achieve a housing goal. For the education component, you will have to attend formal classes with an established curriculum. Online education is also acceptable under HUD standards.

In order to reduce your MIP, you must complete three elements in education and counseling at different stages of your home purchase, according to HUD:

• A minimum of six hours of education and counseling before signing your mortgage contract
• One hour of pre-closing counseling before the loan closes
• One hour of post-closing counseling during the first year of home ownership

"The education will go through such things as building and termite inspections, how to pay for things down the road concerning your house, and just demystifying the process of buying a home," Russell says.

The education classes also help people with understanding home insurance, property taxes, maintenance and repair of the home, and other aspects of home ownership that costs money, she says.

[Interested in applying for an FHA loan? Click to find the right lender for you.]

Who Can Qualify for HAWK?

According to HUD, in order to be eligible for HAWK, you must be a first-time homebuyer who qualifies for FHA-mortgage insurance. A first-time homebuyer is an individual who has not been an owner in a primary residence for at least three years leading up to the purchase.

All borrowers participating in the HAWK Pilot are required to complete each of the required housing and counseling sessions in order to qualify for the incentives.

"The counseling could be very beneficial also to repeat homeowners who haven't owned a house for a while, too," says Russell. "There are new rules, new tools, and a lot has changed in the finance industry. My expectation for the HAWK program is that more and more people will be seeing the benefits of homeowner education. And at the end of the day, it will result in sustainable, successful homeownership."

How Much Can You Save?

Each individual homeowner participating in the pilot program will be saving a different amount, depending on the price of their home and the cost of the MIP.

But according to the Blueprint report, on the average FHA loan balance of $180,000, these reductions can add up to $9,800 over the life of the loan (30 years).  And it may not sound like much when compared to the original loan amount - but it’s an easy way to save.

And while the reductions in mortgage insurance premiums for HAWK are a start, they don't go far enough to make home purchases more affordable, says National Association of Realtors President Steve Brown in a letter sent to the FHA's Commissioner Carol Galante.

The HAWK reductions will only reduce the monthly payment by $21 per month for the first two years on an average loan of $180,000. Starting the third year, it'll reduce payments by an additional $21 to make it a $42 monthly reduction, Brown says in the letter.

"While any amount helps, many qualified homebuyers will still not be able to achieve homeownership unless insurance premiums come down more," he states.

His suggestion to the FHA is to reduce mortgage premiums across the board. Additionally, Brown is concerned about the amount of time it will take for buyers to access and complete the counseling program.

When Will It Be Available?

First-time homebuyers don't have to wait much longer - the estimated start date for FHA HAWK is October 1, 2014, according to HUD. Lenders and HUD-approved counselors are also just beginning to find out about the program, Russell explains.

"At the housing counseling level, education has been proven to help people," she says. "People get so fixated and focused on the prize [the house] that they are not thinking about the whole nine yards and not paying close attention to the whole financial management and budgeting of owning a house. That's where the education portion comes in."

And through education and counseling, homebuyers are empowered people who can make better choices, says Russell. Plus, the homeowner has the tangible benefit of reducing their mortgage insurance costs, she says.