Renting or buying is always a difficult choice. Getting approved for a mortgage can be even more difficult. If you choose to buy a house, congratulations – it’s a big deal.
If you are like most Americans, this transaction will be the biggest investment you make in your life. It is also likely that you finance the purchase with a mortgage. But mortgages come in many varieties, most of which are not appropriate for your situation.
How do you know? which type of home loan is right for you? The first step is to learn more about the types of current loans.
This post will feature everything you need to know about the FHA mortgage, a popular alternative to conventional mortgages. There are many different subtypes of FHA loans, with varying limits and convenience.
What is an FHA mortgage?
FHA loans are issued by private lenders, including credit unions and traditional banks. Loans are provided by the Federal Housing Administration and are intended for owner-occupied residences, not for rental properties or holiday homes.
Contrary to popular belief, FHA loans do not come directly from the federal government. However, when a borrower is in default on an FHA loan, the Federal Housing Administration’s insurance policy protects the lender against financial losses.
The FHA has insured more than 40 million residential mortgages since 1934. Thanks to the low payment requirements (up to 3.5% of the purchase price) and the underwriting standards for borrowers with imperfect credit (it is possible to qualify with Score of 600 FICO), the program is popular with first-time homebuyers, those with limited personal savings, and borrowers with poor credit scores.
FHA loans have some notable disadvantages, including expensive mortgage insurance such as private mortgage insurance or mortgage protection plans. FHA also borrows the experience of selling price restrictions that can affect buyers in high-cost markets.
Types of FHA Home Loans
FHA mortgages come in many different flavors depending on your age, assets, income and current property holdings (if any).
Fixed Mortgage Interest Rate.
Also known as a 203b mortgage, this is the most popular type of loan to buy FHA. The terms may vary, but 15 and 30 years are the most common. Mortgage interest rate tend to be lower than comparable conventional mortgages. 203b mortgages can be used in one or four unit homes.
Variable Rate Loan (ARM).
Under Section 251 Floating Rate Mortgage Program, FHA provides MRAs with interest rates that can increase by no more than one percentage point per year and no more than five percentage points on any the duration. Borrowers receive a notice of rate increase pending at least 25 days prior to the increase.
Known as Section 234c loans, FHA co-ownership loans are 30-year fixed mortgage interest rate products that finance the purchase of individual condominiums in buildings with more than four units. There is no strict tenure requirement, so borrowers can use FHA-backed condominium loans to earn rental income. However, in any given development, at least 80% of FHA insured loans must be provided to homeowners.
Secured loan refinancing.
FHA Secure Refinance Loans are designed to help borrowers with conventional fixed-rate refinancing mortgages, FHA mortgages. Delinquency is not necessarily disqualifying, although it must result from higher monthly payments on a conventional MRA. Non-delinquent borrowers can refinance any type of conventional loan. Standard qualification requirements apply, including stable income, acceptable credit rating and reasonable debt ratios.
Home Equity Conversion Mortgages (HECM or Reverse Mortgage).
Popularly known as a reverse mortgage, a HECM allows homeowners aged 62 or older to capitalize on their home equity and pay off the rest of their existing mortgages without making monthly mortgage payments or moving away. For seniors with limited savings and fixed incomes, HECMs are excellent sources of tax-free money, although they have significant legal and financial implications for homeowners and their heirs.
Installment payment loan.
Known as Section 245 Loans, Progress Payment Loans are designed for homeowners who expect their incomes to increase significantly in the medium term – for example, future professionals or engineers at the last few years. stages of training. The monthly payments of graduated payment loans can increase over a period of 5 or 10 years, after which they remain constant for the remaining term. Annual increases range from 2.5% to 7.5% on 5-year plans and from 2% to 3% on 10-year plans.
Loan of increasing shares.
The goal of the Expanded Equity Loan program is similar to that of the Installment Loan Program, except that it is more versatile: it can apply to one to four family housing, condominiums, co-op housing and housing intended for renovation or maintenance. rehabilitation. Monthly payments are subject to annual increases of between 1% and 5%, and loan terms cannot exceed 22 years.