July 10, 2017
When is an FHA loan a good idea? The answer depends on what you’re looking for from a home loan. Some borrowers are exactly right for an FHA mortgage, others may need another alternative. Is an FHA loan right for you?
FHA Loan Occupancy Requirements
Most FHA single family home loans require occupancy. The lender will ask you to certify in writing that you intend to occupy the property as your primary residence and not as a vacation home or other occasional occupancy type situation. Borrowers are free to purchase homes with up to four units and rent out the unused living units, but at least one borrower must occupy the home as her or his primary residence (usually within two months of loan closing).
So if you are looking for a home to live in as your main address, an FHA mortgage loan is definitely an option you should explore. If you seek a vacation home, an investment property, or a property where you can operate a business but not occupy like a residence, an FHA mortgage is not right for you. Your participating lender won’t be able to approve an FHA loan for occasional occupancy, purchases of bed-and-breakfast property, etc.
When You Need A Low FHA Loan Down Payment
Do you need a mortgage loan with a low down payment requirement? FHA mortgages have a minimum 3.5% down payment requirement, which is substantially lower than some conventional loans. A qualified borrower may be required to pay 10% or more down with non-FHA mortgages. Borrowers should know that FICO scores, credit reports, and financial qualifications may affect interest rates and the amount of money down you’ll need to pay.
Those with good credit scores don’t need to worry about elevated down payment costs. Those who have FICO scores a lender could view as “marginal” may need to budget extra funds for a higher down payment, but you should discuss your circumstances with the lender to see what FICO score requirements may apply at that financial institution. FHA loans provide a competitive edge on many conventional mortgages in terms of interest rates and down payments, so it’s good to compare other options with an FHA loan to see how the numbers stack up.
When You Need To Refinance
We will cover the FHA refinance loan option in more detail in another blog post, but in general borrowers should know that FHA refinance loans are available for both FHA and non-FHA mortgages. You may be able to get into a lower interest rate, a lower payment, or move out of an adjustable rate home loan and into a fixed rate FHA mortgage. FHA refinance loan options are definitely worth exploring if you currently make home loan payments and want to explore your options to lower them.
When You Anticipate A Change In Family Size
FHA home loans are generally approved for “one loan at at time”, but some FHA borrowers (and some non-FHA mortgage borrowers, too) may purchase a home only to outgrow it more quickly than anticipated. Did you know that there are exceptions built into the FHA loan rules that permit borrowers with existing FHA home loans to buy another property to accommodate an expanding family, or a sudden job-related move?
These exceptions are handled on a case-by-case basis and the circumstances for the new purchase loan have to meet FHA and lender criteria, but an FHA mortgage for a second home may be possible depending on circumstances.
Talk to your loan officer about what may permit you to purchase another property with an FHA mortgage even if you are currently paying on an FHA loan. Some borrowers find that their original home may not sell quickly enough to suit their needs when dealing with job relocation or expanding family issues. Such situations force the borrower to purchase the larger home or the property closer to work in spite of not having sold the old home-can your participating FHA lender use the exceptions mentioned above to help?
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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