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The Types of FHA Loans - By Jeff Annino


With conventional standards tightening, more borrowers are being qualified for FHA loans. In fact, they're considered one of the easiest loans to qualify for and make homeownership an option, even for those with less-desirable financial backgrounds. Yet, even with its looser qualifications, including lower credit score standards, FHA loans encompass multiple types. These include:

Fixed Rate

The most popular type of FHA loans, fixed-rate options are considered ideal for the first-time homebuyer. Because this option allows borrowers to finance up to 97 percent of the total amount, it keeps down payments and closing costs low. Fixed-rate FHA loans, as well, are the only option in which all of the closing costs can be a gift from a relative, nonprofit, or government agency.

Adjustable Rate

Adjustable-rate FHA loans are HUD mortgages for low- and moderate-income families. The loan assists with transitioning to homeownership and can be used in conjunction with other FHA programs. While the initial interest and payments are low, rates go up and down over time. Although the crash of the housing market revealed the weaknesses of adjustable rate mortgages, they can be beneficial when average fixed rates are high.


Energy-Efficient Loans

An option for both current homeowners looking to make improvements and borrowers wanting to purchase property, energy-efficient FHA loans assist with carrying out upgrades that could ultimately lower monthly bills. The program, as well, eliminates the need to cover additional home improvement costs.

Graduated Payment Mortgages

Considered ideal for low- to moderate-income borrowers, Graduated Payment Mortgages are an option for a homeowner who expects his or her income to increase over the next five to 10 years. Over time, the payment increase with the homeowner's earning potential.

Growing Equity Mortgage

Considered ideal for first-time homebuyers and families, Growing Equity Mortgages help those unable to make the upfront costs. While borrowers with a low monthly income can qualify, payments increase over time with his or her assumed earning power.

With this option, additional payments can be applied toward the principal to reduce the term. Homeowners can also reduce the term by applying scheduled increases on monthly payments.

Condominium Loans

Condominium loans present an option for renters who want to prevent displacement if the apartment building is converted into condominiums. This program insures a loan for 30 years, allowing the borrower to purchase a unit in the building, and extends affordable mortgage credit to those with less-typical forms of homeownership.

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