FHA Adjustable-Rate Mortgages (ARMs)

FHA Adjustable-Rate Mortgages (also known as ARM, Variable) is one of the absolute best Adjustable-Rate Mortgage programs available today. Consumers may use an FHA Adjustable-Rate Mortgage program for 1-4 unit homes, condominiums, townhouses, as well as PUDs. FHA does not offer an initial low “teaser” rate like many other adjustable-rate mortgages and as such it will normally start at a slightly higher rate than most other adjustable-rate loans. FHA Adjustable-Rate Mortgages are specifically designed to protect the home owner from higher payment and interest rates adjustments that are common with other loans. Yearly interest may rise or fall no more than 1% per year versus 2% for a conventional loan. Lifetime Cap of the FHA Adjustable-Rate Mortgage is no more than 5% over the initial beginning rate versus 6% for a conventional type loan. In essence, a FHA Adjustable-Rate Mortgage can take five years before reaching its maximum rate versus a conventional loan that can cap in just three years. The FHA Adjustable-Rate Mortgage is based on the 1-Yr. T-Bill economic indicator index.

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A great benefit of the FHA Adjustable-Rate Mortgage is that the consumer can “streamline refinance” to a FHA fixed-rate mortgage at any time. Additionally, since the consumer qualifies at the lower start rate, they can qualify for a larger mortgage loan amount as well as a higher sales-priced home.

Consumers can predict what the interest rate will adjust to by working through the formula for ARM interest rate.

Here is an example of that formula scenario:

• Index + Margin = Fully Indexed Rate
(current 1-Yr. T-Bill Rate) + (percentage, usually 2.75%) = Interest Rate

Here is an example of a calculation for better consumer understanding

• Index =5.25% + Margin of 2.75% = Fully Indexed Rate = 8.00%

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Qualifying for an FHA Loan

Fortunately, FHA mortgage loans are the easiest type of mortgage loan to qualify for. FHA guidelines to qualify for a loan are the most flexible of all mortgage loan programs that require less than 5% down payment.

Following are Basic FHA Qualification Guidelines:

• Two years of steady employment, and they prefer it be with the same employer.

• Last two year Income should be the same or increasing.

• Credit report details should typically have less than two thirty-day “lates” in the last two years.

• Bankruptcy’s MUST be at minimum two years old with good credit since then.

• Foreclosure’s MUST be at minimum three years old, with good credit since then.

• Consumer’s new mortgage payment should be approximately 30% of consumer’s gross income.

These are just some of the most basic FHA guidelines for qualifying for an FHA loan. If the consumer has answered YES to the majority of the statements, they likely qualify for an FHA mortgage loan.

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