Mortgage Options with the FHA Loan Program
March 20, 2024
Conventional loans are administered by the financial institutions they originate from, and because of that, the standardization found among those loans is typically caused by a combination of state and federal law, industry standards, and other variables.
A government-backed mortgage is different in the sense that the loan rules are more standardized no matter where you buy a home.
But even with government-backed mortgages like those offered through the FHA, there are some variations to be aware of.
FHA Loan FICO Score Rules
FHA loans, on paper, allow borrowers to qualify for a mortgage with FICO scores as low as 500. However, lender standards in this area will vary, and you are likely to be expected to come to the loan process with FICO scores closer to the 600 range to qualify.
That’s entry-level FHA loan advice. The next level of information you need to know here is that not all lenders will say no to lower FICO scores, but they will offer you higher rates in return for taking the risk of lending you the money for your new home.
You can buy down those higher rates if the lender allows you to purchase discount points.
FHA Loan Property Type Rules
You can use an FHA mortgage to buy an existing home, condo unit, manufactured home, etc. You can also use an FHA loan to buy a multi-unit property you rent out to others, provided you live in one of the units.
That’s the basic advice. The more advanced advice?
FHA loan rules have changed in the last few years to include greater consideration for those who want to use the home as income-generating property (while meeting FHA occupancy requirements). Your experience as a landlord may help you qualify for these loans.
Some property types only work as single-unit, single family housing. Condo units are one of those, and many manufactured homes, too.
But for a duplex, triplex, or four-unit home you still can apply for a low down payment FHA mortgage and have higher loan limits with the 2, 3, and 4-unit properties.
FHA Loans for Older Homes
With an FHA loan, you do not have to buy a new house. You can buy a fixer-upper with an FHA 203(k) rehabilitation mortgage and bring the home up to state and FHA standards. This option is also offered as a refinance loan, which means you can refinance and remodel the existing house rather than buy a different one.
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A government-backed mortgage is different in the sense that the loan rules are more standardized no matter where you buy a home.
But even with government-backed mortgages like those offered through the FHA, there are some variations to be aware of.
FHA Loan FICO Score Rules
FHA loans, on paper, allow borrowers to qualify for a mortgage with FICO scores as low as 500. However, lender standards in this area will vary, and you are likely to be expected to come to the loan process with FICO scores closer to the 600 range to qualify.
That’s entry-level FHA loan advice. The next level of information you need to know here is that not all lenders will say no to lower FICO scores, but they will offer you higher rates in return for taking the risk of lending you the money for your new home.
You can buy down those higher rates if the lender allows you to purchase discount points.
FHA Loan Property Type Rules
You can use an FHA mortgage to buy an existing home, condo unit, manufactured home, etc. You can also use an FHA loan to buy a multi-unit property you rent out to others, provided you live in one of the units.
That’s the basic advice. The more advanced advice?
FHA loan rules have changed in the last few years to include greater consideration for those who want to use the home as income-generating property (while meeting FHA occupancy requirements). Your experience as a landlord may help you qualify for these loans.
Some property types only work as single-unit, single family housing. Condo units are one of those, and many manufactured homes, too.
But for a duplex, triplex, or four-unit home you still can apply for a low down payment FHA mortgage and have higher loan limits with the 2, 3, and 4-unit properties.
FHA Loans for Older Homes
With an FHA loan, you do not have to buy a new house. You can buy a fixer-upper with an FHA 203(k) rehabilitation mortgage and bring the home up to state and FHA standards. This option is also offered as a refinance loan, which means you can refinance and remodel the existing house rather than buy a different one.
------------------------------
RELATED VIDEOS:
Homebuyers Benefit From the Work Done by Fannie Mae
HUD 4000.1 is Sometimes Called the FHA Handbook
Credit History Is Presented as Your FICO Score
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