September 29, 2014
A reader asks, “I am trying to relocate to a new home with my three small children and would like to use an FHA loan to purchase it. I was told about a 40 yr note with yearly payments? Is there such a program? I am currently enrolled in school, working towards my bachelor’s degree in nursing. I have access to some funding for a down payment, approx $30,000. I have also located a home that I want to purchase. 3 bed, 3 bath on 25 acres, approx value of $89,900. Can someone please help me find the right loan to purchase this home?
FHA loans have specific rules about the term of the loan. According to HUD 4155.1, under the section titled Maximum Loan Limits, Mortgage Amounts and Mortgage Terms, we learn the following:
“The maximum mortgage term may not exceed 30 years from the date that amortization begins. In the case of adjustable rate mortgages (ARMs), the term must be for 30 years. FHA does not require that loan terms be in five year multiples.
Note: Some programs require a shorter term, including certain streamline refinances made without appraisals.”
That information is found in HUD 4155.1 Chapter One Section A. A review of the FHA loan rules turns up nothing that addresses the “yearly payment” option mentioned in the reader question but it seems highly unlikely that a lender would agree to such terms. Mortgage loan payments are normally arranged on a monthly basis.
The answer to that portion of the reader question would depend greatly on lender standards.
Borrowers who bring a large down payment to the FHA loan transaction (as mentioned in the reader question) may find that certain loan terms are more favorable–this being due to the “compensating factor” of a large down payment.
It may be best to speak directly with a loan officer in such cases to see what flexibility might be available in loan terms with a larger than usual down payment.
Do you have questions about FHA home loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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