More FHA Loan Programs

In addition to the standard single-family home loan known as the 203(b), the Federal Housing Administration (FHA) offers numerous other loan programs to meet various needs and circumstances. Adjustable-rate mortgages, growing equity mortgages, manufactured housing loans, and even loans for veterans are available. Several are well-known; others are not widely known or used. Here is a brief synopsis of some of the programs available from the FHA:

Available only to veterans, the FHA/VA 203(v) program (also known as the FHA/VA Tandem Loan) can be employed by those who've used their VA eligibility or who want to preserve their VA certificate for a later time. The FHA/VA loan does not involve the veteran's entitlement, and there are no limits as to the number of times that it can be utilized. This loan can only be used to finance single-family structures; duplexes or other multi-family properties are not permitted.

The FHA Adjustable-Rate Mortgage (FHA ARM) combines the three-percent down payment guidelines of the standard 203(b) program with the features of an ARM. This loan can be used to refinance any existing HUD loan, and is assumable with normal borrower qualification at the loan's current interest rate. Maximum interest rate increase caps are limited to 1 percent per year and 5 percent over the life of the loan. Additionally, the FHA ARM does not allow negative amortization.

Section 245's FHA Graduated Payment Mortgage (GPM) plan allows a borrower to pay lower initial monthly payments during the early years of the loan. Mortgage payments are structured to rise gradually for a set period of time, generally from five- to seven years, and then remain fixed for the remainder of the loan. This enables borrowers to grow into higher monthly payments as their income increases.

The FHA Growing Equity Mortgage (GEM), under Section 245(a), is designed to allow the borrower to grow equity in his or her property at a faster rate than with the traditional 30-year mortgages, while at the same time keeping payments low during the early years of the loan. With the GEM, payments increase between 2 percent and 7½ percent each year (depending upon the particular plan), with the increase being applied directly to the principal balance. The loan is thereby retired in approximately fifteen years, dramatically reducing the overall cost of the mortgage.

The GEM program is easier to qualify for than a conventional 15-year loan because the initial monthly payments are lower. By roughly the tenth year of the loan, however, the payment will be higher than that of a standard 15-year mortgage.

Manufactured housing loans are made under the FHA Title I program, which is similar to the residential guidelines of the 203(b) program. A borrower can receive financing for the purchase of a manufactured home and land. The program can also be used to buy just the home if land is already owned, or land if the manufactured home is already owned by the borrower.

Section 203(h), which covers home financing for disaster victims, is available to anyone whose home has been destroyed or severely damaged in a federally-declared disaster area. The funds can be used to rebuild the home or purchase a new one; however, the borrower's application must be filed with the Department of Housing and Urban Development (HUD) within one year of the President's declaration of the disaster. Under this program, 100 percent loans can be obtained (including closing costs). Prepaid expenses such as property taxes and insurance can be paid by the borrower, or the lender can premium price the loan (charge more interest) and pay the prepaid items for the borrower.

Section 203(k), rehabilitation home mortgage insurance, insures loans used to rehabilitate existing residential properties that will be used for residential purposes, or to convert non-residential buildings to residential use or change the number of family units in the dwelling. The 203(k) provides the borrower with interim and permanent financing in one loan. The loan amount, which is based on the property's after-renovation value, cannot exceed the current FHA maximum mortgage in the borrower's area.

For more information on these and other available loan programs, please visit the FHA's website.