The Most Common Types of FHA Loans

FHA loan form

FHA loan formThe Federal Housing Authority established the FHA loan program upon its formation in 1934. The purpose of the FHA loan program is to help Americans get housing loans.  The FHA does not lend out money itself. It only promises lenders that if the owner of a loan it backed does not pay, the FHA would cover it.

The benefit to the mortgage owner is the low down payment. If you are eligible for the FHA loan program, you only have to pay 3.5% as a down payment. To make the program more accessible to more people, the FHA supports different types of home loans. Below are some of the most common ones.

Fixed rate

A fixed rate mortgage is a conventional type of loan. The interest rate is the same throughout the loan term, which can be as long as 30 years. The only things that will change the monthly payment are the amount of the property taxes and insurance premiums.  It is the most common type of loan people apply for through the FHA loan program.

Adjustable rate

An adjustable rate mortgage is also a conventional loan. However, the interest rate can change over the term of the loan. You might get a fixed interest rate for the first few years, after which the interest rates will follow market changes.

Reverse mortgages

People over 62 years old that own their primary residence can apply for reverse mortgage loans. They can use the equity on their homes to get money from a lender to spend on whatever they want. The loan principal and interest rate become due when the property owner dies or sells the property.

Gradated payment

This type of loan is for people with good prospects but limited incomes. A new college graduate or professional just starting out is a good candidate for this loan. Also known as a Section 245(a) loan, the monthly payments are smaller than normal in the early part of the loan term. This gradually goes up over time when the mortgage owner can presumably afford to pay more.

Many more types of loans are available under the FHA loan program. These are just the most common ones. If you qualify for and want to apply for an FHA-backed loan, it’s likely you’ll find one to fit your circumstances.