How to Get an HUD/FHA Adjustable Rate Mortgage
What it is
| At a Glance | |
|---|---|
| Loan Type: | Housing |
| Lender: | Government |
| Secured: | Yes |
An HUD/FHA adjustable rate mortgage enables borrowers to obtain mortgage financing that is more affordable by virtue of its lower interest rate acquired through the United States Department of Housing and Urban Development. The interest rate of adjustable rate mortgages are adjusted annually and based upon market indices approved by the Federal Housing Administration, or FHA, and thus can increase or decrease substantially over the term of the loan. In 2006, the FHA received approval to offer hybrid adjustable rate mortgages, in which the interest rate is fixed for the first three to five years and is adjusted annually after that.
The interest rate cap structure provides some protection from large interest rate swings. There are two types of caps — the annual cap and the life of the loan cap. The annual cap restricts the amount your interest rate can change, up or down, in any given year. The life of the loan cap limits the maximum and minimum interest rate you can pay for as long as you have the mortgage.
Who it's for
The FHA's mortgage insurance programs help low- and moderate-income families become homeowners by lowering some of the costs of their mortgage loans. FHA mortgage insurance also encourages lenders to make loans to otherwise unworthy borrowers and projects that might not be able to meet conventional underwriting requirements, protecting the lender against loan default on mortgages for properties that meet certain minimum requirements — including manufactured homes, single and multifamily properties, and some health-related facilities.
What you need to do to apply
In order to obtain an FHA adjustable rate mortgage, a borrower must contact several lenders or mortgage brokers and determine which ones originate FHA loans. Each lender sets its own rates and terms. Also, you will need to determine your debt to income ratio in order to determine how much you can spend on a home. Then you will need to get pre-approved for the FHA loan.
Apply for an HUD/FHA Adjustable Rate Mortgage
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