There’s no doubt that the economic downturn of the last several years was rough, but now we’re in a steady recovery. While it can feel like you’re fighting an uphill battle to get a loan at times, there are some programs out there that can help. In fact, there are numerous options available for those looking to secure a loan. One that has been used for more than 75 years is the FHA loan program, a program wherein the FHA actually insures the loan that you take out. By doing so, they help lenders offer you lower interest rates, better terms, and easier acceptance.
For example, FHA loans often require smaller down payments, lower credit score requirements, and lower overall incomes. You’ll still have to meet various requirements, but they’re much easier to qualify for than other mortgage loans will be.
FHA loans are also available in various forms, and while many people assume that a fixed rate is their only option, the fact is that FHA loans are also available as adjustable rate mortgages. In fact, they have several different options including:
- 1 Year ARM
- 3 Year ARM
- 5 Year ARM
With each of these loans, the ‘year’ listed above doesn’t mean that you have that long to repay the loan. Instead, that time period refers to the number of years the interest rate will remain fixed. For example, in a 3 year ARM, the initial interest rate will be fixed. After that year, it changes into a variable rate mortgage – or an adjustable rate mortgage, as it’s often called. With these mortgages, the interest rate may change from month to month or year to year depending on the current market trend and other factors.
While there are some risks involved in this, adjustable rate mortgages are often worth considering if you have trouble qualifying for other types of loans. These adjustable rate mortgages offer lower initial costs, reduced down payments, and other similar benefits that make it easier for families to qualify for and afford a home loan. It also reduces the initial payment, making it cheaper for families to begin their lives as homeowners.
It’s also worth noting that FHA loans will also have caps in place to protect borrowers. For instance, 1 and 3 year ARM loans will have an annual cap of one percentage point. Each year, your interest rate can’t increase by more than a year, and they also have a 5 point cap for the life of the loan. Your interest rate can never increase to more than 5 points of the initial interest rate you agree to. 5, 7, and 10 year ARMs have a two point annual cap and a 6 point life of loan cap.
Of course, as with any other kind of loan you’ll want to pay careful attention to the terms, rates, and fees associated with any loan. If you are trying to secure a loan that offers lower initial costs and that is slightly easier to qualify for, FHA adjustable rate mortgages could be well worth looking into further.