FHA Loan Programs
There are several FHA loan programs that qualified borrowers can apply for. The programs include
the 203b fixed rate program, the 251 adjustable program, the 203k purchase and rehabilitation program, and the Title I program. Other programs exist, but these are the most common.
The 203b Fixed Rate Program
As its name implies the 203b is a fixed rate loan. The 203b does require a minimum 3% down payment. Gifts from family and friends are allowed in order to reach the down payment amount as
are grants from government and non-profit agencies that aid first time buyers. A 203b does
not require that you have cash reserves in order to qualify. It does however, require that
you have been employed steadily for at least 2 years. Also, another benefit is that only
FHA approved closing costs may be charged by the lender. The 203b loan can be used for
1-4 unit dwellings that are owner occupied.
The 251 Adjustable Program
The 251 is the FHA's adjustable rate mortgage. The term on the mortgage is 30 years, and
indexed to 1 year Treasury Bills. The periodic interest rate cap is +-1%, while the lifetime interest rate cap is 5% from the initial rate. These caps are generally significantly
more attractive, and safer than adjustable rate mortgage caps from conventional lenders. The borrower must
qualify for the 251 at 1% above the initial interest rate. The closing costs rules and
insurance requirements are the same as the 203b.
The 203k Purchase and Rehabilitation Program
The 203k program was created to help improve and reenergize communities. Some areas have houses
that are of good quality structurally but require extensive repairs (the so called fixer-upper).
Usually a borrower must first purchase a home and then get a construction loan. The
construction loan will likely be a second mortgage, which will be at a significantly higher
interest rate. The 203k program combines the construction loan with the mortgage loan.
As of 2007, for a house to qualify under the 203k program, it must require at least $5,000 in
repairs. The 203k does not cover so called luxury items such as a pool, tennis court, gazebos, etc.
FHA Title I Program
The Title I Program allows the financing of light to moderate repairs. As of 2007, the maximum
loan amount that is insured under this program is $25,000, and is insured for 25 years.
The borrower will have to pay mortgage insurance premium with this loan program. Title I Program
loans are only available through approved lenders.
FHA loan programs can assist borrowers in the purchase of their home. In addition to the programs
discussed above, the FHA also offers programs for educators, and policemen. Be sure to visit
the FHA website for more information about these and other programs currently available.
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