June 28, 2011
There are many different types of FHA insured home loans to choose from. Buying a home or refinancing one isn’t a one-size-fits-all process, and FHA guaranteed loans come in a variety of types to accommodate the various needs different house hunters or current home owners bring to the lender.
The two most basic types of FHA home loans are new purchase loans and refinancing loans. New purchase FHA loans, by name alone, may seem to indicate that these loans are intended only for new construction houses, but new purchase simply refers to the type of transaction (a “new to you” home purchase), not the age or condition of the property itself.
FHA refinancing is, as the name implies, a home loan intended to pay off an old home loan and start a new one on the same property. Refinancing loans can include FHA-to-FHA refinancing or conventional-to-FHA refinancing. There are cash-out refinancing loans and loans designed to help borrowers lower monthly payments, interest rates, or both with no cash back to the borrower. There are also Home Equity Conversion Mortgages designed for seniors 62 and older who want to get cash for the equity built up in the home.
There are two basic types of loan terms for FHA insured mortgages, fixed and adjustable rate mortgages. Fixed rate loans have interest rates that never change, while Adjustable Rate FHA loans have specific adjustment periods where interest rates may increase or decrease depending on market conditions and/or other factors.
One type of adjustable rate FHA mortgage is called the Graduated Payment Mortgage, which features loan terms that include low initial monthly mortgage payments which increase over time. The idea behind the GPM as the loan is commonly called, is that payments increase along with the income of the borrower. These loans are designed for those who anticipate rising income over the five to ten years following the closing of the deal on a new home.
A similar program is called the Growing Equity Mortgage, also aimed at those who currently have low monthly incomes but expect them to increase over time. Payments start small and grow over the lifetime of the loan according to the contract and FHA requirements. Borrowers who expect increases in pay over the loan term are right for this type of mortgage.