Types of FHA Loans

An FHA loan is a type of mortgage loan that is backed by mortgage insurance, which is provided through lenders that are approved by the FHA (Federal Housing Administration). These loans are classified as a form of federal assistance, and are specifically designed to allow Americans within lower income brackets to borrow money for property purchases that would otherwise be unaffordable. The Federal Housing Administration does not actually fund the loans, it simply insures loans that are fulfilled by private lenders. In other words, the aspiring homebuyer obtains a mortgage loan from a lender, and the FHA insures this loan to ensure that the lender still receives payment if the borrower fails to make payments.

FHA loans allow subprime borrowers, such as individuals with poor credit and/or low income, to obtain approval for mortgage loans. FHA loans also provide assistance by lowering monthly mortgage payments and contributing a percentage of the closing costs. In order to find an FHA loan you’ll need to contact several lenders to find out if they originate FHA loans, and inquire about the interest rates and terms offered on their FHA loans. There are five main types of FHA loans – FHA 203b, FHA 203k, FHA 203c, FHA HUD financing, and FHA buy down loans, each of which are described below.

FHA 203B Loans
These are by far the most common type of FHA loan, which offer a fixed rate mortgage that can range in length from 10 to 30 years. The FHA 203B loan program can be used to purchase 1 to 4 family homes or townhomes within rural and urban areas. Applicants do not need to be first-time homebuyers to gain approval for an FHA 203B loan.

FHA 203c Loan
An FHA 203c loans are designed to finance mortgage loans for a single unit within multifamily dwellings (i.e. – an apartment or condominium). This type of loan is most ideal for individuals looking to purchase a property in an urban area. At FHA 203C loan also carries a fixed rate, and terms range from 10 to 30 years.

FHA 203K Loan
FHA 203K loans are specifically designed to provide mortgage loans for homes that need repairs. These loans differ from the aforementioned FHA loans because in addition to the financing required to purchase the property, the individual also receives a lump sum within an escrow account that allows them to make the necessary repairs to the property after purchasing it.

FHA HUD Financing
FHA HUD financing is provided to individuals that would like to purchase FHA foreclosed properties. Surprisingly, these properties can be purchased with a down payment as low as $100. The Federal Housing Administration also provides up to $2500 for assistance in covering closing costs. As with the other types of FHA loans, terms for this type of financing range from 10 to 30 years.

FHA Buy Down Loan
An FHA buy down loan is an adjustable loan that allows the home buyer to receive reduced interest payments for the first year after paying a nominal fee of $1000. For example, a homeowner applying for a mortgage with a 5% interest rate could reduce the rate to 4% by paying $1000 and using an FHA buy down loan. Another type of FHA buy down loan is an adjustable rate mortgage (ARM), which allows the home buyer to receive reduced interest rates for the first 3 to 5 years of the mortgage, but no additional fee is required. However, once the initial period of 3 to 5 years has expired the interest rate will begin to increase steadily, so the homebuyer could end up paying a much larger amount each month.

Comments are closed.