FHA Loan

By: EconomyWatch Content   Date: 14 December 2009

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FHA loans are mortgage loans in the US which are insured by the Federal Housing Administration (FHA). They are specialized loan products targeted towards families from average and low income groups.

Understanding FHA Loan

The FHA loans are available in different variants to serve specific housing-related needs of the Americans. Types of FHA loans are:

 

  • Adjustable rate: It is a Housing and Urban Development (HUD) mortgage plan for low and average income families.
  • Fixed rate: This FHA loan is meant for individuals with limited or no savings, such as recent graduates, newlyweds or students.
  • Energy efficient mortgage: It allows existing or potential homeowners to incorporate energy efficient modifications.
  • Graduated loans: FHA offers graduated loans to individuals having low income currently but are expected to increase in next five to ten years.

 

The FHA also has specific loan programs for individuals interested in purchasing condominium units.

FHA Loan: Refinance

Apart from the above mentioned finance options, the FHA loans offer refinance for eligible homeowners as well.

 

The two refinance options available are:

 

  • Cash Out refinancing
  • Streamlined refinancing

 

These refinancing options help homeowners to tap into the equity acquired from their home investment. Cash Out refinancing allows the homeowner to seek another mortgage larger than their existing debt. This scheme can refinance up to 85% of the existing appraised loan amount. However, FHA Structured Refinancing allows an individual to enjoy low interest rates on existing home mortgages. This scheme offers refinancing benefits without any appraisal in the debt amount.

 

FHA Loan: Secure Refinancing

The FHA loan secure refinancing scheme is developed for borrowers with adjustable rate mortgages. This scheme offers refinancing options for borrowers who have missed up to three installments in last 12 months. Both FHA and non-FHA borrowers are eligible for FHA Secure Refinance. It is developed to provide lower interest rates, protect individual investments and prevent foreclosures in a highly fragile economy.

 

Eligibility conditions for FHA Secure Refinance scheme are:

 

  • Have a steady income
  • Favorable payment history for credit card bills and other debts
  • Debt-to-income ratio should be lower than 41%

 

Although FHA does not place minimum income requirement to guarantee home loans, it considers debt-to-income ratios to prevent individuals from purchasing homes that they cannot afford.


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