FHA loans are a great tool to utilize in the path to home ownership. A notable feature is that you can put as little as 3.5% down on a 1-4 unit owner occupied property.
Things to know:
- FHA is great for low credit scores! Typically you will see better rates than conventional for scores in the 500's and 600's. It also is more forgiving of past credit events such as foreclosure or bankruptcy and has a shorter wait period before you can apply for a mortgage.
- With a credit score of at least 580, you can put 3.5% down. If between a 500-580 then 10% is required. Many lenders have overlays on this and may not go as low as 500 credit score.
- For owner occupied homes only (2-4 unit investment properties acceptable as long as you live in one unit).
- Mortgage insurance is required for the life of the loan. If FHA is your best option currently, a good strategy is to refinance to a conventional loan later on once either the loan has been paid down, or home has appreciated resulting in 80% or less loan to value.
- Generally you can have up to a 50% debt to income ratio with a FHA loan, some lenders will even allow close to 60%!
- Non occupant co-borrowers are allowed to help you qualify for the loan.
- Can be more difficult in hot markets to get an FHA offer accepted by sellers.