For most Americans checking into an FHA loan is a wise choice. The FHA has helped 34 million Americans achieve the American Dream; home ownership. As you consider an FHA loan, knowing your options will help you pick the right loan product for you. The FHA offers four basic types of loans. These include; the Home Equity Conversion Mortgage, the SF Rehabilitation Mortgage, the Adjustable Rate Mortgage and, the Fixed Rate Mortgage.
The most commonly known FHA insured loan is the Fixed Rate Mortgage. This is also known as the 203(b). As the name implies, this loan offers the homebuyer an interest rate that will not change as the national interest rates change. In any economy that finds rising interest rates common place this is an advantage. However, a homebuyer will not benefit in an economy with decreasing national interest rates. If you choose a Fixed Rate Mortgage, refinancing is often an option should the possibility of a better interest rate arise.
Many first time homebuyers choose an Adjustable Rate Mortgage. This mortgage offers an interest rate that fluctuates with the times. The advantage to an Adjustable Rate Mortgage is that the initial interest rate is often low. This results in lower initial mortgage payments, allowing you extra cash for all the “new home incidentals” you will encounter. To safe guard homeowners from rising interest rates, the FHA has placed restrictions on the amount an Adjustable Rate Mortgage can fluctuate. An FHA insured adjustable rate loan may only increase/decrease 5 or 6% over the life of the loan and only 1 or 2 percentage points in any given year.
A SF (single-family) Rehabilitation Loan would be the loan to consider if you are looking into purchasing a “fixer upper”. This option is only available for single family homes. The loan will include sufficient funds to purchase the home and pay for the repairs needed.
A Home Equity Conversion Mortgage is more commonly known as a Reverse Mortgage. This mortgage is advantageous if you are 62 or older and have virtually paid off (or fully paid off) the mortgage on your primary residence. In this case you can use the equity in your home as a source of monthly income. The loan is repaid (usually with the sale of the house) when you are no longer using it as your primary residence. If you are considering a Home Equity Conversion Mortgage, the FHA requires you meet with an FHA approved mortgage counselor to discuss your options.
Knowledge is always your best defense. Understanding all that the FHA has to offer will help you make the best decision for your present and future home needs.