Loan market is full of
loan options for every kind of person depending on their credit worthiness. Some are able to achieve
conventional loan which include Freddie Mac and Fannie Mae whereas some not eligible for these loans get federal housing administration loans insured by the government.
Federal Housing Administration
Federal housing administration is developed to help all those people who are not eligible for conventional loans due to
bad credit, no credit or
bankruptcies. Secondly people who fall in low or moderate income families cannot afford large down payments and loan closing fees which considerably reduces their chance of owing a home. FHA loans eliminate this threat by providing insurance on their loans to the
mortgage lender.
Federal Housing Administration does not work on taxes paid by people like other government agencies. It is a self generated budget agency. It doesn’t provide loans to people. It insures them that they will pay the loan hence securing the lenders. Being
secured the lender allows such people to have a loan. The money generated due to insurance payments made by the borrowers is used to fund FHA.
FHA loans Types
FHA loans come in the following flavors suited to people according to current
interest rates or financial situation.
1.FHA 203(b)
FHA 203(b) is a
fixed mortgage loan for a loan term of 15 to 30 years. The best thing about this loan is the down payment which is only 3% and can easily be given by a low income generating family. Having a fixed rate allows almost 97% of financing and minimum closing costs. One more advantage of this type of FHA loan is that a non profit government agency or a relative can pay the entire closing cost or down payment.
2.FHA 251
FHA 251 is an
adjustable loan. In this loan the initial interest rate is lower for some years. Because of this reason people can finance a better house. This FHA loan has certain advantages. First of all the interest rate change due to adjustable rate mortgage is monitored through out the loan term. In one year the lender is not allowed to increase the interest rate by more than 1% and the total interest rate cannot go beyond 5%. The borrower also pays lower monthly amounts and even after the fixed interest limit is over they pay lower amounts due to lower interest rates prevailing in the market today.
FHA 2/1 Buy-Down Loan
The buy down loan works just like the 15 year or 30 year
mortgage in which the borrower prey-pays an amount of the loan in the beginning which help him to get 1 to 2 % more lower rate for first or first two years. Advantage of this FHA loan is that the borrower has to pay lesser monthly payments and in case of refinancing an interest rate even lower then the new interest rat can be achieved. In simple words you will get a loan that has lower interest rates but a loan which has stable monthly payments like that of a fixed loan.
