FHA Loans Oregon

So this question about FHA has to do with whether or not FHA offers adjustable rate mortgages (ARM) and temporary buy downs. First of all, FHA doesn’t offer the programs, the lenders that work with HUD offer the programs and FHA insures them. Of course, if FHA wouldn’t insure the loan program, the lenders sure wouldn’t offer them, would they? And they do, you can buy a home in the Eugene/Springfield Oregon are and us either an adjustable rate mortgage or a temporary buy down.

Since there has been so much press about how bad ARMs are and how they have just destroyed people, then I am sure that everyone knows what an ARM is, right? No? Well, then let’s got into a bit of detail on what an ARM is, in relation to an FHA loan. ARMs, as the name explains, is adjustable. That adjustment period can vary, depending on the product. With FHA, there are 1 year ARMs, 3 year ARMs and 5 year ARMS. What this means is that they are fixed for the period mentioned and then the rate will adjust every year thereafter, depending on the margin and the index. The great thing about FHA ARMs is that they (generally) have a very low margin.

The margin can be higher if the lender so desires. The margin that I work with is 1.75% and the index (I think on all of them any more), is the 1 year LIBOR (London Inter Bank Offered Rate) which is 1.5075. The margin cannot change once it is set but the index changes often. What all of this means is that if you have an FHA  ARM currently at 5% and it was time to adjust, the rate would change to 4%. You get this by adding the index and margin together and then reducing or raising the rate to the new rate but no more than 1% per year for the 1 and 3 year ARMs. Call me if you have difficulty figuring this out, it is what I do. There are 7 and 10 year ARMs but the rates are not competitive.

Harder to explain are the 2-1 and the 1-0 buy downs.  Very simply, it means that the rate is bought down for a temporary period. As an example, if the 30 year fixed rate was 5%, a 2-1 buy down would give you a rate of 3% the first year, 4% the second year and the remaining 28 would be at 5%. A 1-0 buy down would reduce the rate to 4% the first year with the remaining 29 years being at 5%. There is a cost associated to these programs. The 2-1 buy down costs 2.5% of the loan amount in fee and the 1-0 buy down costs .875% of the loan amount.

Both of these can be good products for someone with a specific plan over a time period. They all offer a lower initial interest rate and can be a good way for some people to go. ARMs and buy downs are not for everyone. Take to a professional and get the right information before making your decision. You can reach me at 541-342-7576/541-221-3455 Cell or e-mail me.