June 6, 2024
Every part of the home loan process has a set of choices to make. For most house hunters this process begins with the decision to own your own home and quit renting. What other choices await you on the road to homeownership?
Interest Rate Options: Conventional, FHA, Fixed, Adjustable
No matter which type of home loan you choose, VA, FHA, USDA, or conventional, you’ll need to decide whether to apply for a fixed or adjustable mortgage.
The fixed-rate loan is good for those who need a predictable house payment for the full duration of the mortgage. Unless you refinance, the rate will not change.
An adjustable-rate mortgage has an introductory period (typically at a lower rate) followed by periods of rate adjustments.
FHA adjustable-rate mortgages may, for some borrowers, be simpler than certain conventional mortgages. Why? The rate adjustments for FHA loans are regulated and cannot exceed FHA limits for each adjustment period. Conventional loans are not centrally regulated in the same way when it comes to adjustable rate loans.
Home Size, House Function
VA and FHA mortgages are government-backed loans. They allow you to buy a house to live in (a primary residence” up to living four units large. The caveat here is that one of the borrowers obligated on the loan must occupy in the house as the home address after closing day.
Conventional lenders may have an option for you to buy an investment property (typically one rented to others and not used by the borrower) but for FHA loans, there is an occupancy rule. In most cases borrowers can’t be approved for an FHA loan or other government-backed mortgages for investments property.
You can buy a house considered a “fixer-upper” with an FHA loan. Your options also include buying mixed-use property. The caveat is that the building must comply with FHA residential loan requirements. However, these loans are possible depending on the circumstances.
A different FHA loan exists for certain property types, including condo units, manufactured or mobile homes, and existing construction. You can also get an FHA mortgage to build a home from the ground up on your own lot.
Loan Options To Consider Before You Commit
Did you know that FHA loans forbid a penalty for early mortgage payoff? That is true whether you sell the home, refinance it, or just pay it off early.
FHA refinance loan options include streamline refinances. These are refi loans that do not require an FHA-required credit check or appraisal. The lender may require one, depending on the circumstances, but the FHA does not.
You can also apply for the FHA Energy Efficient Mortgage. This is an add-on to the loan for approved house upgrades to make your new home more efficient. Not all energy improvements qualify for the program but many do.
There are other home loan options to consider, including having a conversation with your participating lender to explain interest-only mortgages. You can also inquire about graduated payment mortgages and simple refinance terms or cash-out options if you decide to explore a refi loan.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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