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Homebuyers seeking a low down payment and affordable mortgage payments can avoid risky mortgage features with FHA mortgage loans. Here's why an FHA loan is a great choice.

FHA Mortgages Provide Alternative to "Surprise" Mortgage Features

FHA mortgage loans are becoming increasingly popular among home buyers and homeowners seeking mortgage refinancing. An important aspect of FHA mortgage loans is that they provide accessible home financing without "exotic" mortgage features that can lead to problems after the initial "teaser" period expires.

Teasers, Negative Amortization, and Interest Only Mortgage Features: Shopping More than Rates

If you're looking for a mortgage, shopping more than rates is essential to finding a loan that you can live with over the long term. Mortgage loans may be designed to get you into a home, but FHA home loans provide affordable rates and don't have "surprise" features.

  • Don't get "teased": A teaser mortgage rate is an initially low mortgage rate that's in effect for the first few months or years of a mortgage loan term. When the teaser rate expires, the mortgage rate changes, sometimes increasing enough to make payments unaffordable.
  • Going up? A mortgage feature that can cause problems for borrowers is negative amortization. When mortgage payments are less than required to pay a fully amortized principle and interest (P&I) payment, unpaid interest is added to the mortgage balance. The amount you owe on your mortgage increases, and you're paying interest on the inflating mortgage balance. Payments increase over the life of the loan.
  • Interest only loans:These mortgage loans may be useful for people seeking short term financing, but paying interest only can be risky for long term homeowners. While paying interest only, your mortgage balance does not decrease, and you don't accumulate home equity as fast as you might with a fully amortizing FHA mortgage loan.Eventually, your payment is adjusted, and the entire balance is amortized over the remaining period of the loan, increasing your payment significantly.

FHA guidelines allow financing with as little as 3.5% down. You can roll the up front mortgage insurance premium and some closing costs into your mortgage as well. Although FHA has recently revised its credit reqiurements, FHA home loans are widely available to borrowers with credit challenges including prior bankruptcy or foreclosure. Contact FHA approved lenders for more mortgage quotes and information on FHA mortgage rates and home loans.

Karen Lawson
Karen Lawson is a freelance writer with extensive experience in mortgage banking and home loan loss mitigation programs. She holds BA and MA degrees in English from the University of Nevada, Reno.