Did you know the Federal Housing Administration (“FHA”) offers types of home loans that fit almost everyone? There are loans for first-time home buyers, loans for seniors, loans for manufactured and mobile homes, loans for “greening” your home, loans for Native American Indians and many more. In this article we will only give you a brief summary of these types of home loans, as each one could be an article in itself.
Types of Home Loans: Basic Mortgage 203(b) and Beyond
Basic Home Mortgage Loan 203(b) may finance up to 96.5% of the lesser of the home’s appraised value or sales price for borrowers with credit scores of 580 or higher. Borrowers with credit scores from 500 to 579 are generally limited to 90% financing, subject to FHA requirements and lender underwriting. This loan allows you to finance the upfront mortgage insurance premium into the loan and there is an annual mortgage insurance premium that needs to be paid. This loan is eligible for 1 – 4 unit structures.
Adjustable Rate Mortgages (“ARM”) have an interest rate the can go up or down. Usually, ARM’s advertise a lower interest rate than fixed rate loans however, FHA recommends only using an ARM if you plan to live in your home for a few years. This loan has an initial interest period after which time the interest rate will change. Suffice to say, if you plan on staying in your home for more than 3 years, select a fixed rate loan which will prevent your interest rate from going up. It can be challenging to budget over the long-term with an ARM loan because you cannot predict what the new rate will be. FHA has 1 year, 3 year hybrid and 5, 7 and 10 year hybrid ARMS.
Condominium Mortgages are available for FHA approved condominium projects with up to a 30 year mortgage. The condominium must be primarily residential and contain at least 2 units. The condo can be detached, semi-detached, a row house, a walk-up, a mid-rise, and a high-rise. It does not matter whether or not it has an elevator. The condominium can also be comprised of manufactured housing (factory built housing).
Cooperative Mortgages help a buyer purchase an apartment in a residential cooperative (NY is known for having a lot of “Co-op’s”). The apartment can be in a detached building, semi-detached building, a row house or a multi-family building. There are dollar limits set on the mortgage loan.
Disaster Victims Mortgages are made to victims of a disaster which has been deemed a disaster area by the President of the United States. This loan can be made to rebuild your home or buy a new one. These loans are only for principal residences.
Emergency Home Loan Program (EHLP) was in place to help homeowners with information and assistance in preventing foreclosure of their home. This program has expired and has been replaced with other types of home loans and assistance programs. FHA recommends you contact a HUD approved counseling agency or NeighborWorks America for foreclosure prevention counseling.
Energy Efficient Mortgages (EEM) have two options. Option 1 is to refinance your current mortgage with an EEM by installing energy efficient systems and products to your home to make it more efficient and comfortable. Option 2 is to use an EEM to purchase a more energy efficient home. It is possible to increase your approved loan amount when using an EEM to purchase a home.
Graduated Payment Mortgages are for purchasing a home during a time when interest rates are high and individuals with a lower income cannot find a mortgage due to the high interest rates. It can only be used on your primary residence and your income is expected to increase over the coming years.
Growing Equity Mortgage is a product where your mortgage payments start lower and gradually increase over time. This loan can reduce the number of years you have a mortgage by reducing the principal amount of the loan.
Home Equity Conversion Mortgage (HECM) is a reverse mortgage for seniors 62 years of age and older. If you have paid off your mortgage or have a majority of equity in your home with some mortgage remaining you could qualify for this loan. This loan could provide you with supplemental income during your retirement years. You must complete HECM counseling with a HUD-approved counselor before applying; the lender then evaluates whether you meet FHA and underwriting requirements.
Indian Reservations and Other Restricted Lands is a loan that allows you to finance up to 97% of the mortgage amount. The property must be on tribal lands. Closing costs can be financed; or covered by a gift to you from someone, or paid through a grant or through secondary financing; or paid by the seller of the home.
Manufactured Home Loan (Title 1) is used to finance new or existing manufactured homes. The maximum loan term is 20 years. The home is to be used as your primary residence and you must meet certain credit requirements.
Manufactured Home and Lot Combination is for those individuals who are going to buy a lot and then place a manufactured home on the lot. At the time this article was written, the maximum was $92,904 for a manufactured home and $23,226 for a lot. HUD updates these loan limits periodically, so check the current amounts at hud.gov before relying on them. As in other FHA loans this must be your principal residence.
Rehabilitation Mortgage 203(K) can be used to purchase a home as well as make improvements to your current home. As a purchase loan you can include up to $35,000 of improvements in addition to your purchase price of the home (dependent upon the amount of your loan approval). Improvements can be a new heating system, improvements in a kitchen or bathroom or flooring.
FHA Short Refinance was a temporary program for certain homeowners who owed more on their home than the home was worth. The program ended December 31, 2016, and is no longer available.
Title 1 Home Improvements allow for small or large improvements. These loans can be used on single family homes and multi-family structures. There are maximum loan amounts and maximum terms depending on the type of structure. The interest rate is fixed.
Mortgage and Major Home Improvement Loans for Urban Renewal Areas can be used by individual homeowners, apartment owners, investors, builders, and developers. The homes must be located in designated Urban Renewal Areas. The Single Family Program and Supplemental Loan Program are not currently active.
Believe it or not, there are even more types of home loans. We just covered FHA options. Check back for the next installment.
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