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Saturday, March 30, 2013

FHA Loan Programs

By Daniel Duffield

FHA loans, while not as diverse as conventional loans, come in several different forms, each tailoring to a different sort of borrower. Visit Lender411’s comprehensive guide on FHA Loans vs
Conventional Loans for in-depth information. Here is a list of the basic variations of FHA loans:

FHA Loan Program: Adjustable Rate

The FHA adjustable rate mortgage is an FHA-insured loan in which the interest rates can fluctuate, hence “adjustable.” These mortgages best serve low to moderate-income families buying their first homes. Through this type of loan, the Federal Housing Administration limits initial costs of interest rates and mortgage payments to make the loan more accessible and affordable. While interest rates may increase or decrease over time, you will receive at least 25 days of notice of any changes to your total monthly payment.

FHA Loan Program: Fixed Rate

Fixed rate FHA loans are FHA-insured loans in which interest rates remain static. These mortgages generally benefit borrowers who have not managed to accrue a large savings for the costs of the purchase such as down payments and closing fees. Since interest rates are not subject to change, fixed rate mortgages tend to be less risky than adjustable rate mortgages.

FHA Loan Program: Energy Efficient Mortgage

The Energy Efficient Mortgage program, or EEM, allows homeowners or potential homeowners to increase their homes’ energy efficiency through home improvements. This loan enables a borrower to acquire the necessary funds for this process without having to obtain a second loan in addition to a home loan. However, eligibility of these improvements requires that their total cost not exceed the total dollar value of the energy that will be saved during their useful lifetime, meaning that only profitable investments will be accepted.

Graduated Payment Mortgages

Graduated Payment Mortgages are loans which begin with cheaper monthly payments to principal and interest but incrementally increase each year for up to ten years. These mortgages best serve borrowers who have a low to moderate income while closing the loan but who expect their income to grow significantly over the course of the loan. Keep in mind that these mortgages cost more in interest over the course of the loan than mortgages with consistent payments.

Growing Equity Mortgages

Growing Equity Mortgages are similar to Graduated Payment Mortgages in that they also have small initial payments that gradually rise. Unlike Graduated Payment Mortgages, however, the additional money from increased payments applies directly to the loan principal and reduces the term of the mortgage. These loans also allow homeowners to schedule payment increases to additionally reduce the mortgage term. Growing Equity Mortgages tend to target first time homebuyers or young families who cannot afford the upfront and monthly costs of other mortgages.

FHA 203(k) Loan

The FHA 203(k) loan is a rehab loan, or a loan that provides the funding for home rehabilitation and improvement. This type of loan enables a borrower to essentially manage two loans in one: a home loan and a home equity loan. These loans best fit investors who are familiar with the lending process and are willing to take the risk of purchasing and fixing up foreclosed and/or damaged property.

Where to Find an approved FHA Lender Near You

If you are considering taking out an FHA loan, it is important to shop around to find the absolute best rates for your loan. Due to the large amounts of money in an FHA loan, small adjustments in interest rates can make a significant difference in the total cost of your loan.

My name is Scott Grebner and I have been helping my clients realize their own personal real estate dreams. Real estate is a relationship-based business that works best when client relationships are built on trust and confidence. My goal is having clients be completely satisfied with the professional and caring service they have received.

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