Types of FHA Loans
Those looking to buy a home may take advantage of many types of FHA loans that make homeownership affordable. Each of the FHA loan programs offers less-stringent underwriting guidelines than a traditional loan. As a result, those who would not qualify for a conventional mortgage have a chance to finance a home, based on a more flexible set of criteria.
Borrowers must apply for these loans through an FHA-approved lender. Lenders with the FHA designation have the in-depth knowledge to underwrite the various types of FHA loans. Not only that, but FHA lenders are required to abide by a standard set of guidelines that ensures all borrowers are evaluated fairly for a loan.
Whether you are looking to purchase a home, take equity or make improvements, there is a loan program that can help. Keep reading for more information on the many FHA loan programs available. Additionally, you can download our comprehensive guide to learn more about these exciting opportunities.
FHA 203(b) Basic Mortgage Insurance Loan
Homeowners looking for affordable mortgage financing have many types of FHA loans from which to choose. All the FHA loan programs feature less-strict underwriting guidelines than a traditional mortgage. Each of the loans requires a minimum credit score of 580. Some lenders accept scores as low as 500, under specific circumstances. What makes the loans so affordable is that borrowers are only required to pay a down payment of 3.5 percent of the purchase price.
An FHA 203(b) loan is the flagship program of the FHA loans. This specialized loan allows borrowers to finance the mortgage insurance premiums into the loan. Thus, borrowers do not have to pay out-of-pocket for the insurance, nor do they need to keep up with separate bills. Homeowners pay the insurance premiums as a part of their mortgage payments each month.
Supplementing Income with a Home Equity Conversion Mortgage (HECM)
Seniors 62 years of age and older can supplement their income by taking advantage of the equity in their homes. With a Home Equity Conversion Mortgage (HECM), borrowers take a portion of the equity in their homes as loans. The lender then pays that equity to the borrower through regular payments, or as a line of credit. Borrowers may use the money as they see fit. In some cases, borrowers may use the loan to purchase a new home.
As the only federally funded reverse mortgage program, only those lenders approved by the FHA may offer this program. Additionally, applicants must attend an HECM counseling program that educates them about the loan. Attending the session is one of the eligibility criteria items. Download our comprehensive guide to learn more about how you can benefit from the HECM program.
FHA 203(k) Loans
The 203(k) loans solve many problems for those seeking to finance homes that require repairs or rehabilitation. Traditional financing often requires shorter loan terms, higher interest rates and balloon payments. The FHA 203(k) loan, on the other hand, is a single loan that combines the cost to purchase the property with the cost to repair the home.
The home purchased must be at least a year old, and have a minimum repair cost of $5,000. Borrowers may use the funds to perform a wide array of repairs including:
- The elimination of health hazards.
- Upgrades or the replacement of plumbing.
- Adding or repairing the roof.
- Energy conservation improvements.
FHA 203(h) Mortgage Insurance for Disaster Victims
The FHA 203(h) mortgage helps victims of natural disasters repair or establish new residency after a major disaster. Borrowers who live in presidentially designated disaster areas qualify for the 203(h) loan program. Homeowners whose homes are destroyed or are with significant damage have up to one year to apply for this program.
Also, borrowers must apply for the loan through an FHA-approved lender. The loan covers single-family homes. However, multi-dwelling units are eligible if the borrower resides in one of the units. Funds may be used to reconstruct their homes or to reestablish new residences.
Loan terms for this 203(h) FHA are more flexible than the standard FHA loan. For example, borrowers do not need a down payment for this program. Also, lenders allow up to 6 percent of the buyer’s closing costs to come from the seller, or in seller concessions.
Making Home Improvements With an FHA Title 1 Loan
Borrowers who have little equity in their homes may take advantage of the FHA Title 1 Loan to make repairs to their homes. Homeowners with the Title 1 Loan may use the money to make the house more livable and useful. Items, such as appliances, qualify. Also, those with disabilities may use the funds to make improvements to the home to make it more accessible. Homeowners may perform the improvements themselves, or hire contractors.
Title 1 loans do not have income or credit requirements. Also, borrowers must have lived in their homes for more than 90 days if they are first-time homebuyers. The maximum debt-to-income ratio for the program is 45 percent.
FHA Manufactured Home Loan Insurance (Title 1)
The FHA mobile home loan allows those interested in owning mobiles the chance to obtain a loan for the purchase of a mobile home – new or used. Applicants may have lower credit scores and debt-to-income rations, when compared to that of traditional loans for homes, when buying mobile homes. In addition, the FHA manufactured home loan generally encompasses a lengthier maximum loan term, as well as lower interest rates.
Energy Efficient Mortgage Program
The goal of the Energy Efficient Mortgage program is to help homeowners make their homes more energy-efficient. The Energy Efficient Mortgage helps borrowers purchase or refinance their homes by including the cost of the improvements included in the loan. While the loan does cover the cost to make the upgrades, the borrower does not need to qualify for the additional money for the improvements.
Instead, the applicant must be eligible for the purchase or refinance amount. The cost of improvements is added on top of the amount for which the applicant qualifies. The FHA requires the home to be the applicant’s primary residence.
Under the EEM mortgage, the cost of the energy improvements comes in the form of what the FHA refers to as an “energy package.” The package is a set of energy improvements the borrower chooses to make. Applicants select which improvements to make based on an energy analysis performed by an energy assessor. Improvements can include items such as active and passive solar packages or wind technology.
Items chosen for the improvements must be cost-effective, in that the cost of improvements must be equal to, or less than, the money saved on energy bills for the home. Only FHA-approved lenders may offer Energy Efficient Mortgage options.