FHA Mortgage Loans for Farm Buildings No* Available

Washington, D. C., May lG-The Federal Housing Administration will start insuring mortgages o,n farm properties beginning today, according to an announcement by Stewart McDonald, Administrator.

Amendments to the National Housing Act passed in February permit the Administrator for the first time to insure mortgage loans made on farms on which'farm houses or other farm buildings are to be constructed or repaired, provided at least 15 per cent of the loan proceeds is expended for materials and labor on buildings. Rules and regulations covering these loans have now been prepared by the FHA. Previously FHA insurance has been granted only on nonfarm real-estate loans.

Farmers who operate their own farms, individuals who rent their fanns to others. and farm tenants and others who contemplate the purchase of farms are all eligible to borrorv from approved institutions under the terms of Title II of the Act. Institutions approved by the FHA as mortgagees, which may apply for insurance on farm loans, include banks, building and loan associations, life insurance companies, mortgage companies, and other lending agencies. Individuals may obtain FH/r.-insured farm mortgage loans to repair existing farm houses or buildings or to construct new houses or buildings. In addition, they may borrow to refinance existing mortgages upon their property, solong as at teast 15 per cent of the loan proceeds is applied to materials and labor in construction or repair work.

These insured mortgage loans are distinct from modernization and repair loans provided for in Title I of the National Housing Act. Loans of the latter type are exclusively for financing improvements upon property already owned, including the construction of new buildings where the loans do not exceed $2,500 each. Title I loans for improvement may amount to $10,000, but Title I loans may not exceed five years for improvement or seven years for the construction of nerv residences.

FHA-insured mortgage loans are long-term amortized credit advances. They are made by private institutions which the Federal Housing Administration insures against lo,ss through payment to them, in case of default, in the form of Government-guaranteed obligations. The I.'HA does not lend money or build houses.

Mortgages insured by the FHA may amount to as much as $16,000. The interest rate may not exceed five per cent. In addition, a mortgage insurance premium is charged which amounts to one-quarter of one per cent in some cases and one-half of one per cent in others. FHA-insured mortgages may run as long as 25 years in the case of some mortgages of $5,400 or less, with a fuyear maximum in all other instances.

The maximum amount which may be borrowed in relation to the appraised value of farm property is 9O per cent for loans of $5,,100 or less, between 80 per cent and 90 per cent for loans from $5,400 to 8,600, and 80 per cent for loans exceeding $8,600. The exact proportion which may be borrowed depends upon the rating of the mortgage risk. FHA-insured mortgage loans on farms are repaid by the borrower in regular installments, either monthly, semi-annually, or annually, in accordance with the income of the borrower. Installments include principal and interest payments, hazard., fire, and mortgage insurance premiums, drainage and irrigation charges, ground rents, taxes, and special assessments. They do not include initial charges by lending institutions for title search, appraisal, and mortgage recording fees.

The application fee paid to the FHA amounts to $3 per $1,000 to cover the cost of its appraisal. In addition, the lending institution may collect an initial service charge to reimburse itself for the cost of closing the transaction. This charge may not exceed one per cent of the amount of the mortgage, or $20, whichever is greater, except in the case of construction loans where the charge may be one and onehalf per cent, or $30.

The FHA makes careful appraisals of the property upon which insured mortgage loans are made, and takes into consideration all factors affecting its value and usefulness. Its property requirements and construction standards also (Continued on Page 30)