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Although 30 year fixed rate loans are the most popular mortgages offered by the Federal Housing Administration, there is no requirement that forces borrowers to choose this type of home loan. And even though this popular mortgage program is offered by the government, borrowers can still choose what type of mortgage they'd like and for how long the term should be.

What Length And Type Of FHA Mortgage Should You Get?

Now that you've finally found the right home, it's time to find the right mortgage to go along with it as well. To many people's surprise, the Federal Housing Administration (FHA) offers a variety of mortgage options varying in length and type. Although many often associate the FHA with traditional 30-year fixed-rate home loans, there are options ranging from shorter term loans to adjustable rate mortgages. Before deciding on a specific FHA home loan, you'll need to evaluate your financial needs and goals as a homeowner to find the right mortgage.

Fixed Rate FHA Home Loans

30 year fixed rate mortgages are quite popular with the FHA because these loans are the most predictable and manageable types of loans available--there're no worries about changing interest rates and volatile monthly mortgage payments. Additionally, these traditional loans are typically priced competitively. For fixed rate mortgages, the FHA, like other lenders, can offer loans with varying term lengths. For example, homeowners with larger down payments and more accommodating monthly incomes can pay off their homes quicker with a shorter term 15 year mortgage. There are some lenders that even offer 40 year mortgages to borrowers wishing to reduce their monthly mortgage payment. But remember, the longer the term of your mortgage, the more you'll pay in interest finance charges in the long run.

FHA Adjustable Rate Mortgages

Adjustable rate mortgages are better suited for those with short term plans to move, sell, or refinance in the near future. Currently, the FHA offers variable rate loans with temporary fixed rate periods of 1, 3, 5, 7, and 10 years. The benefit of FHA ARMs is that they are much more manageable compared to other ARM products available in the market. The rate cap increase for 1 and 3 year ARMs is 1% annually, and a lifetime cap of 5% from the original interest rate. The 5, 7, and 10 year products have an annual rate cap of 2% and a lifetime cap of 6%.

Most importantly, borrowers do not have to worry about any restrictive clauses such as prepayment penalties which can cost homeowners thousands of dollars in fees. The FHA also requires full documentation for both fixed rate and adjustable rate home loans--a practice which prevents borrowers from opting for ARM products solely due to lack of financial ability to make a fully-amortized payment and prove that they can do it. Borrowers considering a variable rate mortgage should also keep in mind the option of an FHA streamline refinance. With a streamline refinance, the FHA allows minimal paperwork, and sometimes there are even no credit or appraisal requirement--while still allowing borrowers to take advantage of lower fixed interest rates.

Coordinating The Length of Your FHA Mortgage with Your Finances

Deciding on the length of your mortgage with the FHA is really no different than comparing most other mortgage lending options. When making your decision, just keep in mind the added benefits of FHA such as lower down payments, closing cost assistance, and more manageable ARMs. With these added savings, some borrowers may be able to shorten the length of their mortgage or manage a fixed rate mortgage instead.

To help find the right mortgage, it's also important to have the right professional help by your side. Remember, the FHA doesn't actually lend money--it only insures the mortgages originated by its approved lenders. So when looking for mortgage assistance, be sure you find a FHA lender approved by HUD. And since the FHA has become more popular because of the recent downturn in other avenues of lending, you'll want to compare mortgage lenders online to make sure you find a professional with appropriate experience and knowledge.


Heindrick So
Heindrick So is a mortgage consultant at a local Bay Area Real Estate Brokerage--specializing in residential wholesale lending. Heindrick frequently contributes to various finance columns, ranging from home loans and mortgages, debt management, and other personal finance topics.