Types of FHA Mortgages
If you are interested in acquiring a mortgage loan through the FHA, there are some important facts you should know. The FHA has a wide variety of loans from which you can choose. The FHA allows you to borrow money from a lender, provided your mortgage is insured from default for the first five years. Once your home's equity is of a certain percentage, you will no longer be required to have mortgage insurance; your monthly payments will decrease as a result. However, your monthly mortgage payment is dependant on which type of mortgage you choose.
The FHA allows you to choose from many different types of mortgages depending on your specific circumstances and needs.
Types of FHA Mortgages
- Conventional Fixed Rate Mortgages are set for a certain amount of time at a specific interest rate. The interest rate never changes, which means that your mortgage payment remains the same throughout the life of your loan except for fluctuations in property taxes and homeowner's insurance. Fixed rate mortgages are usually not assumable and often have a prepayment penalty. Fixed rate mortgages are good for people who plan to own their home for a long period of time.
- Conventional Adjustable Rate Mortgages are set for a certain amount of time, but the interest rate changes over the lifetime of the loan. Usually the interest rate is a fixed for the first three or five years, but after that period of time the interest rate will rise and so will your mortgage payments. Adjustable rate mortgages are good for people who plan to stay in their home only for the amount of time that the interest rate is fixed.
- Hybrid Mortgages are similar to adjustable rate mortgages, but the fixed-rate time period is usually longer. For example, a hybrid mortgage may have a fixed interest rate for the first ten years and then the interest rate will increase. Hybrid mortgages are good for people who plan to spend many years in their home but know that they will eventually move into a new home.
- Jumbo Fixed Rate Mortgages are specifically for borrowers who are seeking a mortgage for $333,700 or greater. It is risky for a lender to finance a mortgage this high, so jumbo fixed mortgages are designed for large mortgages that are set for the lifetime of the loan, and the interest rate is usually higher than a conventional fixed rate loan.
- Balloon Mortgages are when a borrower makes smaller payments at the beginning of the mortgage and then pays off the entirety of the loan at a later date. This is good for people who know they will have a large sum of money in the future, or for people who need a lower payment now but expect to make more money in the future.
- Relocation Mortgages are available for people who need a loan to relocate to a new home while their existing home is for sale.
- Bridge Mortgages are similar to relocation mortgages; you can purchase a new home prior to the sale of your existing home. You will have a larger mortgage payment because you will pay for both homes until the existing home sells. However, if there is a home you want to purchase immediately and you are afraid that it will sell while you wait for your existing home to sell, then you can purchase the home with a bridge loan.
- Equity loans allow you to take a loan out on your home based on the existing equity percentage of your home.
- Self-Employed Income Mortgage Loans are available for people who are self-employed, and thus have difficulty showing proof of a steady stream of income.
- The VA's Home Loan Guarantee Program for veterans is very similar to FHA loan programs. Veterans can get loans through the FHA to buy a home with no down payment, and get money to make home and energy-efficient improvements to their new homes.