FHA loans provide consumers who may have limited cash for down payments or lower-than-ideal credit with access to homeownership, although they come with certain drawbacks such as higher mortgage insurance premiums and loan limits.
Compare rates and fees across several lenders before choosing one to meet your needs. Remember that FHA-approved lenders can set their own rates, costs and underwriting standards so it is wise to thoroughly research each option available to you before making a final decision.
Energy-Efficient Mortgage (EEM)
The Energy Efficient Mortgage (EEM) program allows homeowners to add the costs associated with energy efficient improvements into their mortgage loan payment, both conventionally and FHA style loans are eligible. Borrowers can take advantage of it both new home purchases as well as refinancing, saving energy costs while increasing value over time; both fixed rate mortgages and adjustable-rate mortgages may be offered; typically these terms range between 30-years.
This program works by calculating estimated savings associated with energy-efficient upgrades. This estimate is determined through an in-home energy assessment performed by a qualified professional, who then uses their report to establish how much funds can be borrowed under this loan program – giving credit-challenged borrowers more chance of qualifying than many conventional mortgage programs do.
Borrowers who choose the EEM program may make any type of energy-saving upgrade they want; however, only those that produce cost-effective savings on utility bills will qualify for financing through EEM. Furthermore, this program only applies to primary residences; second homes or investment properties are not eligible.
To qualify for the EEM program, borrowers must first meet conventional or FHA loan criteria. They must make at least 3.5 percent down payment with no refinancing transactions occurring simultaneously and possess at least 580 FICO score for purchase transactions (550 for refinances); please check with your lender to learn their minimum FICO scores prior to beginning mortgage negotiations.
The EEM program may be beneficial to homeowners planning on selling their home within several years and hoping to lower utilities costs and boost resale value through energy-saving improvements. However, those unsure whether they’ll follow through with energy saving measures they finance could end up paying off their mortgage early and missing out on energy tax benefits that they would have otherwise received.
Graduated Payment Mortgage (GPM)
Graduated payment mortgages offer an ideal solution for those expecting their income to increase over time. These loans allow buyers to purchase homes with an initial low mortgage payment that gradually increases each year over five to ten years, reaching market rate by the end. This makes mortgage payments more manageable for buyers who can’t afford full payments upfront.
GPM loans are increasingly popular with young people who cannot afford large payments now but expect their incomes to increase significantly in the near future. They may also help those transitioning between careers or jobs qualify for mortgages more easily. It is important to remain mindful of any associated risks, however; one potential problem could be that your income fails to increase at expected levels; should this occur, you could find yourself unable to meet your increasing payments and may ultimately have to sell your home to pay the mounting mortgage payments.
GPMs carry another risk: mortgage payments could exceed property value and result in negative amortization reducing loan equity. Furthermore, lenders may charge higher interest rates which increases overall cost.
GPMs may make becoming a homeowner easier, but they aren’t for everyone. To manage rising mortgage payments effectively and stay out of trouble with lenders and creditors alike, create a plan and save in an emergency savings account or invest in assets that can provide income when payments rise; work with a lender who can offer advice about the effect these loans will have on your credit and finances; be mindful of risks involved such as unexpected income losses or medical costs when considering whether a GPM loan would work in your favor or not.
Growing Equity Mortgage (GEM)
If your income is projected to expand rapidly, a Growing Equity Mortgage could be just what’s needed to help build equity faster in your home more quickly while saving thousands in interest charges. Similar to a Graduated Payment Mortgage (GPM), this type of loan features lower initial monthly payments which gradually increase each year allowing you to accumulate equity faster while saving thousands on interest charges.
However, it’s important to keep in mind that this type of mortgage depends on your ability to increase your salary in line with mortgage payments. If that doesn’t happen, then repayment could become increasingly difficult and even lead to the potential loss of your house. When considering this kind of loan it would be prudent to run various future scenarios and worst case scenarios before making any commitments.
FHA loans are especially appealing to new borrowers entering promising career fields who anticipate their income will increase over time. Repayable in 15 years instead of conventional 30-year mortgage terms and potentially saving thousands in interest payments.
FHA mortgage loans provide more flexible requirements, making this type of mortgage an excellent choice for people who have recently graduated or started new jobs, or don’t have enough savings to make a large down payment or have poor credit ratings.
GEM’s fixed-rate mortgage offers greater predictability for those concerned about fluctuations in their financial circumstances, while no negative amortization means your payments always go toward principal instead of just interest.
One benefit of an unconventional mortgage loan is its ability to allow you to buy more expensive properties than you might qualify for with traditional financing, since its initial payments tend to be lower – this enables you to purchase higher priced properties without needing as large a down payment.
FHA’s Repair Mortgage program offers an effective means of financing home improvement projects for new and existing properties alike. This loan combines both the purchase price of a house as well as any needed repairs into one mortgage payment, making it particularly suitable for first-time buyers looking to add energy efficiency updates or those who don’t meet conventional credit or down payment criteria.
FHA 203(k) Renovation Loans are the go-to choice for those seeking to combine home purchase and improvement into one mortgage loan, featuring low down payments of 3.5% with flexible lending guidelines and no minimum credit score requirement; additionally they allow the removal of PMI (private mortgage insurance).
FHA mortgage insurance helps keep rates low while making qualifying easier for individuals with less-than-ideal financial profiles.
Conventional mortgages do not fall under federal government backing and feature more stringent loan requirements, with specific emphasis placed on credit scores and debt-to-income ratios; some require larger down payments while others offer limited eligibility criteria for property types.
Fannie Mae and Freddie Mac offer homebuyers looking to finance renovations through their primary mortgage options an appealing way. Called the HomeStyle Renovation Mortgage, this option can be utilized both during purchases as well as refinances; up to 75 percent of after-construction appraised value plus renovation costs can be covered through it.
Guaranteed Rate is here to help you navigate your mortgage options and select the ideal loan type for you. Our knowledgeable local experts are on hand to meet with you face-to-face, discuss financing goals and answer any questions about the mortgage process – get in touch today to start this process!