You may have heard of FHA mortgage loans before, but did you know that in addition to the popular fixed-rate option, you can also apply for an adjustable-rate mortgage (ARM) through the government? An adjustable-rate mortgage can provide additional help in being able to afford a home loan.
FHA mortgages are secured by the Federal Housing Administration (FHA), a branch of the Department of Housing and Urban Development. The FHA seeks to help lower to medium-income American become homeowners. They help make loans to these higher-risk borrowers appealing and safe to lenders by insuring the loans with government funds. If the borrower were to default on loan payments and go into foreclosure, the lender would be guaranteed repayment by the government. The loans are also great for borrowers because they allow for easier qualifying and smaller down payments than with traditional loans.
Traditionally, FHA loans have been financed with fixed interest rates, but there is also a program call the Section 251 ARM, that allows borrowers to get a loan with an adjustable interest rate. The way it works is that the interest rate and payment on the loan will be very low for a certain amount of time at the beginning. After the period is up, the interest rate is allowed to adjust based on the general economic fluctuations. This means the rate and payments can go up. Fortunately, if you have one of these loans you will be notified at least 25 days before your payment will increase. This will give you a heads-up to prepare for the heavier load.
The risky part of the ARM FHA mortgage loans is that if you are barely able to afford the initial payments, you may not be able afford your loan when the interest rate increases. You should carefully consider your financial capabilities before you take on this risk. If you do find yourself in this situation, there is often the possibility of refinancing your loan into a fixed-rate FHA mortgage loan. This will change your mortgage into a consistent predictable payment that will hopefully fall easier within your budget.
The requirements for an ARM FHA mortgage loan include having a good credit history. If you have imperfect credit, you should speak with a credit counselor for tips on improving your score. You will also be required to contribute a down payment of at least 3% of the loan total. Although many of your closing costs can often be financed into your FHA mortgage, you may have to pay some closing costs, including appraisal fees or title search charges. You will also have to pay an initial mortgage insurance premium to the FHA, as well as smaller monthly insurance payments thereafter.
If you have had trouble qualifying for conventional loans and would like the flexibility of an adjustable-rate loan, look no further than the Section 251 FHA mortgage loan offered by the government. Contact your local HUD branch to find out if you qualify and to start the application process. Representatives from the FHA can help you get the perfect adjustable-rate mortgage for your needs!