The Different Types of FHA Loans

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There are a number of different FHA loans. They all differ in some key ways, yet they also share some common traits. The common line between the various types of FHA loans is that they are insured by the government. The government doesn’t actually lend the money to the consumer; they only insure a substantial part of it for the lender. These loans also tend to be higher overall because of the government middleman. On the plus side, the extra costs can mean a lower bar of entry than you would get with typical mortgage loans.

Adjustable-Rate Mortgage

The adjustable-rate mortgage is one of the most common types of FHA loans. What’s appealing about it is the low initial rate. It’s rare to find an FHA loan that starts out lower but that will cost you in the long run, as the rate can change periodically. Usually, those changes mean an increase, but they can sometimes decrease as well.

Most all of the adjustable-rate mortgages actually have a fixed rate for a period of time. This provides some stability to the borrower.

Fixed-Rate Mortgage

Somewhat more common are the fixed-rate mortgages. These have a set rate that never changes for the length of the loan. Their stability makes them appealing, even if they can be costlier than adjustable-rate mortgages are initially. These loans come with a number of options regarding how long it takes to pay off the loan. You can find fixed-rate loans for 10, 15, 20 and 30 years, and the rates will be different depending on how long the loan is for.

Section 245(a) Loans

These are similar to adjustable-rate mortgages in a few ways. they start with low initial costs, and those low costs usually continue for a few years. That low entry price is due to the kind of people this loan is designed for. It was created with people in mind who may not have a lot of money right now but who will be making decent salaries in a few years. These would be people who have just graduated college or whose kids are about to leave home and relieve some of their financial burden.

With these loans, the original low monthly payments accrue interest over time, and this is added into the later, higher monthly payments. These loans end up costing more than most others over time, but it can be worth it to have a home at a key moment in life and not have to pay a lot for it each month.

Reverse Mortgage

If you are a homeowner aged 62 or older, then you may qualify for a reverse mortgage. Within the FHA, these types of mortgages are called HECM (Home Equity Conversion Mortgage). As the name implies, the amount of the loan is based on how much equity you have in your home. So you can own the home in full or just in part and still be eligible for your loan.

What’s great about this loan is that you’ll never make monthly payments on it. You only owe on the loan once you sell the house or after you die.

Other Loan Types

There are other types of FHA home loans in Dallas as well. If one of the ones you’ve read about here doesn’t suit you, then you should know that you have other options. It’s always a good idea to look at all the options before you decide on the loan that is right for you.

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