FHA Loan Types

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When you hear the term ‘FHA loan’ you probably think of a 30-year fixed loan. This is the most common FHA loans option, but there are many other lesser-known loan choices available.

Check out your options and see how an FHA loan in Colorado can help you achieve your homeownership dreams.

Fixed-Rate FHA Loans

The most common FHA loan is the fixed-rate FHA loan. But, the 30-year term isn’t your only option. If you can afford the higher 15-year payment, you’ll secure a lower interest rate and pay less interest over the life of the loan.

FHA loans are often available in 15 and 30-year terms, but you may also request a 10, 20, or 25-year term. The shorter the term, the less interest you pay monthly and over the life of the loan. A shorter term also means you own the home faster.

Adjustable Rate FHA Loans

Some borrowers prefer an adjustable rate loan for a few reasons. The ARM loan offers an introductory rate, which is almost always lower than the current fixed interest rate available. But, the introductory rate lasts for a certain number of years, typically 3, 5, or 7 years.

After the introductory rate, your interest rate fluctuates with the index assigned to your loan, such as the LIBOR index. ARM rates also have a margin assigned to them, which never changes. For example, if you have an ARM based on LIBOR + 1%, your margin is 1%.

Adjustable rates change annually, on the same anniversary date each year. ARM loans are good for borrowers in any of the following situations:

• You have low income now, but know it will increase in the next few years. An ARM gives you more borrowing power now, while keeping your payment low. The higher future income helps you afford the unpredictability ARM loans create.
• You are buying the home for the short-term. If you know you’ll move in the next three to five years, taking advantage of an ARM’s lower rates may save you more money. If you move before the rate adjusts, you saved money and didn’t have to worry about the unpredictable adjusting rate.

FHA Energy Efficient Mortgage

The FHA EEM program provides purchase money to buy a home along with funds to make energy-efficient improvements. The improvements must be ‘cost-efficient’ meaning they lower your utility usage and costs.

Your FHA loan may exceed the FHA loan limits for your area by the amount needed for the energy-efficient changes. The maximum addition for these changes is $8,000 or 5 percent of the property value (whichever is greater).

If you choose this option, you’ll need an Energy Efficiency report conducted by an approved professional to prove the savings the energy efficient changes would create.

FHA 203K Loans

If you want a home that needs fixing up or you want to refinance your home and include the cost of the repairs, the FHA 203K loan may help.

You can wrap the cost of your home improvements in the loan with either the standard FHA 203K or the streamline 203K. Both options provide money above the cost to purchase or refinance the home, giving you funds to renovate the home. The standard 203K has more restrictions, including the use of an FHA loan consultant and architect drawing up any structural changes.

The FHA 203K streamline loan allows minor renovations (nothing structural) with fewer restrictions. Both loans provide higher loan amounts (up to 115% of the home’s after-repaired value), and disburses the funds in phases, as the contractors complete the work.

FHA Refinancing Options

The FHA also has a couple of refinance options including a streamline refinance for current FHA loan holders and a cash-out option for any borrower with equity in their home. All FHA refinance options have flexible guidelines just like the FHA purchase loan in Colorado.

Purchase Qualifier Refinance Rate Checker