Physical Address
304 North Cardinal St.
Dorchester Center, MA 02124
Does FHA Do Home Equity Loans
Home equity loans are popular options for people who are looking to cover expenses like medical bills, college expenses, or some major home repairs. Taking into consideration the exceptionally affordable FHA loans, it is natural to ask your mortgage lender – “Does FHA do home equity loans?”.
Unfortunately, the Federal Housing Administration (FHA) doesn’t have home equity loans as part of its program. But, they do offer similar loan types, which can be used as the home equity loan, meaning that you can use the money for any purpose, but the requirements are not the same.
FHA Doesn’t Do Home Equity Loans
Mortgage companies like Angel Oak, E Mortgage Capital, or Bank of America all offer FHA-approved loans. As of today, they are one of the most popular options among people since they have the lowest interest rates and don’t depend too much on a credit score. However, home equity loans are not covered by FHA. Hence, if you wish to take this type of loan, you will need to choose from ones that are offered directly to you by mortgage enterprises like Charles Schwab & Rocket Mortgage partnership. Still, FHA offers some loan types that are quite similar to standard home equity loans, and they often prove to be great alternatives for a person who can qualify for them.
What Are and How Do Home Equity Loans Work?
Home equity loans are one of the most popular options for people who are looking for short-term solutions for covering certain expenses or performing some home improvements. Here are the main characteristics:
- When applying for this type of loan, you are pledging your property in order to receive the money.
- A mortgage company like City Creek will send a professional appraiser to evaluate your property. The value of your property will determine the amount of money you can receive.
- Although some mortgage enterprises might use a different model, home equity loans most often have fixed interest rates.
Home equity loans are not easy to get, meaning that a person needs to have a more than healthy credit score (it varies, but most companies won’t accept credit scores below 650) and clean loan history (there are no recorded overdue payments). Finally, if this is your first experience with mortgage loans, we would strongly advise you to first read a book or two about mortgage services and hire a good broker to guide you through the process.
FHA Offers Similar Loans to Home Equity
There are similar loans approved by the FHA. However, the main disadvantages of all these loans are certain limitations and requirements. Theoretically, standard home equity loans offered by private mortgage companies can result in much larger amounts of money. However, there is no denying that FHA-approved loans are more affordable since the interest rates and downpayment are always lower, and the private company cannot alter these numbers. Here are the FHA loans that can easily substitute the standard home equity loans.
| 203k loans | The 203k is a unique FHA loan since the money can both be used for buying property and house repairs. Hence, it can be perfect for people who are looking to buy older real estate and make some improvements. There are two 203k types, standard and streamlined. The former is for people who are looking to make major changes to real estate, like performing structural changes. The total amount of money needed has to exceed thirty-five thousand dollars. The latter is used for immediate repairs or improvements and does not exceed the aforementioned sum. |
| Title 1 loans | FHA Title 1 loans have a maximum of twenty-five thousand dollars, and they are used for smaller real estate repairs and overhauls. They are similar to standard home equity loans meaning that your home equity will act as coverage. However, your equity will only be taken as collateral if the loan exceeds 7,500 dollars. This loan has fixed interest rates and usually offers a long repayment term, with a maximum of twenty years. |
| Energy Efficiency Mortgages | This type of loan is quite similar to 203k (in some cases, a person can apply at the same time for both this and the 203k loan,) meaning that you can use it both for buying real estate and improving. However, as the name suggests, the money has to be focused on long-term energy solutions for your home. When applying for this loan, the mortgage company has to hire a licensed energy consultant who will decide on what energy improvements are viable for the particular property and make the exact estimation of how much the energy savings will be. |
| Reverse Mortgages | Reverse Mortgages are special loan programs designated for senior citizens above the age of sixty-two. This program works like a home equity loan. The amount of money you can get will depend on the value of your property. However, people are not obliged to repay this loan as long as they are occupying the particular property. In other words, there are two possibilities. Once the property is vacated, it can be used to repay the loan (the amount which you have to repay will never exceed the value of your property) or repay it in a standard way and keep the property. |
Always Consider FHA-Approved Loans First
If you are looking to take a mortgage loan, it is best to consider FHA-approved loans first since they are the most affordable ones, and all fees are regulated by this institution. Of course, due to their limitations on the amount you can borrow, some people don’t find them suitable. But, for most people who qualify, the 203k is a perfect substitute for a home equity loan.
