Other Mortgages

In addition to the popular 203(b) basic mortgage and the 203(k) rehab mortgage, FHA offers several other useful programs. The different programs are referred to by name, and by the section of the National Housing Act that applies.

For borrowers wishing to purchase a condominium, FHA will provide a loan guarantee for condominium units under section 234(c) of the National Housing Act.

FHA loans are assumable, which means that if a home has an existing FHA mortgage, the owner-occupant may sell the home to a new owner-occupant, who may take over the payment obligation, and assume responsibility for the balance due on the mortgage. The person assuming the loan must meet the same qualifications as an original borrower. Any payment that must be paid to the condominium association for maintenance of common areas is separate from the mortgage payment and not financed. The condo must be approved by HUD, and 51 percent of the units in the project must be owner-occupied.

The 245(a) Growing Equity Mortgage (GEM) offers a payment schedule that increases monthly payments over time. The scheduled increases in payments are applied directly to principal, so the mortgage gets paid off more quickly and the borrower will save money on total interest paid. Also under 245(a) is the Graduated Payment Mortgage, which also allows a buyer to start out with lower payments, but in this case, early interest payments are deferred and added to the loan balance after preset periods of time.

Section 251 offers an Adjustable Rate Mortgage, which offers an initial interest rate that will be good for between 12 and 18 months; after which the interest rate and monthly payment can vary. The rate cannot increase or decrease more than one percent per year, or five percent over the life of the loan.

Still other FHA programs include the section 203(h) Mortgage Insurance for Disaster Victims program, for buying a new home if an existing home was destroyed due to a major disaster; and the 203(i) Mortgage Insurance for Outlying Area Properties program, for buying homes in rural areas or a farm house with at least 2.5 acres of land. Section 220’s Urban Renewal Mortgage Insurance is used to rehab homes or build new homes in local redevelopment areas.