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What Types of FHA Loans Are Available
The FHA offers four basic types of mortgage loans; the fixed rate mortgage, the adjustable rate mortgage, the SF Rehabilitation mortgage, and the reverse mortgage. It is important to understand each of the types of FHA loans in order to make the best possible decision for your financial present and future.
The fixed-rate loan is the most common FHA-insured loan. In a fixed rate mortgage the interest rate is guaranteed to stay the same for the life of your loan (usually 30 years) regardless of fluctuations in national interest rates. The benefit of a fixed-rate mortgage is that you always know your monthly payment and you can plan your finances accordingly. The disadvantage is that if national interest rates lower, yours will not. However, there is the possibility of re-financing your loan when interest rates lower.
An adjustable rate mortgage is often appealing to first time home buyers because of the initial lower interest rate it offers. However, the initial interest rate will most likely change over time. To your advantage, it may decrease or it may increase. An FHA insured adjustable rate loan may only increase/decrease 1 or 2 percentage points in any given year. The maximum amount the rate may change over the life of the loan is 5 or 6 percentage points.
The SF Rehabilitation loan is preferred when a buyer wishes to purchase a fixer upper. The property must be a single-family (SF) home. This one loan includes the cost of the mortgage and the cost of repairs. The mortgage is based on the value of the property once the work is completed. The advantage of an FHA insured SF Rehabilitation loan is that the buyer can afford a home and afford to make it their dream home right from the start.
A Reverse mortgage, also known as Home Equity Conversion Mortgage or HECM, is for home owners aged 62 and older. These home owners can use the equity on their home as a source of monthly income or a line of credit. The loan is repaid when the individual(s) no longer occupy the home. Home owners considering this loan option, are required to receive education/counseling by an FHA approved HECM counselor to be sure the loan will meet all their needs, in the present and the future.
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