FHA Loan Types
and Special FHA Program
Fixed Rate Mortgages
FHA fixed rate mortgages, or Section 203(b), are the most typical and popular type of FHA loan. A fixed mortgage is one in which the interest rate does not change. A fixed rate FHA mortgage insures the total amount of the mortgage against default to the lender. This type of loan also requires very little in the way of down payment, as opposed to a conventional loan. The typical down payment for a fixed rate FHA mortgage is 3% of the total amount borrowed. The advantage of a fixed rate mortgage is a lower interest payment if the loan is taken out in a low interest time period. You also have stability, knowing exactly how much your monthly payments will be for the life of the loan. Fixed rate mortgages can be 10, 15, 20, and even 30 years.
Adjustable Rate Mortgages
FHA adjustable rate mortgages, or Section 215, have interest rates that increase and decrease depending on what the federal index is set at for the time period. Initially, an ARM (adjustable rate mortgage) is attractive because the interest rates are set lower to attract more people into using it. There are several factors that go in to calculating the ARM, all of which can affect the interest rate that you are being charged. An ARM is typically more appealing to homebuyers who don't intend to stay in the purchased house for more than a few years, as the interest rates tend to increase over that amount of time. An ARM is also convenient if the current interest rate environment is high, as the ARM rates are set lower than a fixed rate loan. It may also be more financially appealing to use an ARM when interest rates have peaked, as the subsequent interest charged over the life of the loan will most likely reduce monthly payments rather than increase them.
Teacher Next Door
This program is offered directly through HUD (Housing and Urban Development). It allows approved teachers in the United States to purchase housing that has been acquired by HUD at a 50% reduced amount. These homes are typically offered in revitalization areas - areas that are found in low- and moderate-income neighborhoods that may have increased crime rates and many vacant houses, but are targeted as neighborhoods that are good candidates for redevelopment efforts. Under HUD and FHA, teachers not only are able to purchase houses at 50% value, but are only required to make a $100 down payment if the house is financed with an FHA loan.
Officer Next Door
This special program is identical to the Teacher Next Door program, only applicable to approved law enforcement officers of the United States. To qualify for the program, law enforcement agents must live in the purchased property for a minimum of three years.
FHA Renovation Loans
The FHA Renovation Loan, or 203(k), allows homeowners to borrow money in order to, most often, extensively renovate their home. As much as 110% of the costs needed to repair and renovate the home can be financed. There are restrictions as to what types of repairs or renovations can take place, and the minimum amount of the 203(k) is $5000.
Special FHA Program: FHA Bridal Registry Program
Not unlike bridal registry for specialty and department stores, the FHA Bridal Registry program allows a couple to register with a lender. They then open an account that bears interest, and friends or family of the couple can make gift payments into that account. The money gifts do earn interest, and may later be used as down payment towards an FHA mortgage.