What is an FHA Loan?

An FHA loan is a mortgage program thats’s perfect for today’s first-time home buyers.  During the last decade, tightened housing regulations and poor wage growth have left many people feeling like owning a home is beyond their reach. More than ten million Americans can still hold on to their homeownership dreams thanks to flexible FHA loan requirements, which have helped over 40 million people achieve homeownership since 1934.

What kinds of FHA Loans are offered?

Purchase Loans

FHA loans are popular with first-time home buyers because they require less cash for a down payment than other mortgages. FHA lenders can approve buyers with credit scores in the 600 range, which don’t work for conventional mortgages. There’s several more features FHA loans carry that make them work for young buyers:

  • 3.5% Down Down Payment
  • 6% Seller Concessions Allowed (seller paid closing costs)
  • FHA Loans are Assumable (if you sell your home, buyer can “assume” the loan)
  • More FHA Loan Requirements

Refinance Loans

FHA refinance loans are a great option for home owners looking for an interest rate reduction, payment reduction, or debt consolidation.  They’re also used to get cash out of your home, whether it’s used for renovations or anything else. Sometimes FHA refinance is the only option that works for applicants with credit issues or limited equity in their property.  FHA refinance requirements can be more relaxed than other loan programs.

  • FHA Rate-Term Refinance – Finance up to 97.75% of appraised home value.  Standard FHA qualifications apply.
  • FHA Cash-Out Refinance – Finance up to 85% of a appraised home value.  Standard FHA qualifications apply.
  • FHA Streamline Refinance – Appraisal not required.  No employment verification, income verification or credit verification requirements.

Fixed Rate Loans

Most FHA loans originated are fixed-rate mortgages. In a fixed rate mortgage, your interest rate stays the same during the whole loan period, normally 30 years. The advantage of a fixed-rate mortgage is that you always know exactly how much your monthly payment will be, and you can plan for it.

Adjustable Rate Loans

First-time home buyers can be financially challenged, so they often want payments as low as possible. With FHA’s adjustable rate mortgage (ARM), the initial interest rate and monthly payments are low, but these may change during the life of the loan. FHA uses the 1-Year Constant Maturity Treasury Index (1 Yr CMT the most widely used index, to calculate the changes in interest rates. An index is a measure of interest rate changes that determine how much the interest rate on an ARM will change over time.

Term Lengths

FHA offers home purchase and refinance loans at fixed-rate term lengths of 15 years and 30 years as well adjustable-rate mortgages to accommodate as many aspiring home owners as possible.  FHA fixed-rate mortgages, also known as FHA 203(b) loans, were the most popular mortgage in America not too long ago. FHA adjustable-rate loans (Section 251 loans) are also available with initial fixed rates for the first 1, 3, 5, 7 or 10 years, with the FHA 5/1 ARM being the most popular.

Reverse Mortgages

FHA Reverse Mortgages offer people who are 62 years old or above a great opportunity to convert home equity into income or a line of credit they can draw against.  Reverse mortgages are easier to get than standard FHA loans because there aren’t any income or credit checks on the applicant.

As you can see, there’s lots of FHA loan options for home buyers today.

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