Buying a Home With an FHA Loan

Posted by Shawn Clayton on Friday, July 28th, 2017 at 11:20am.

A Guide to FHA Loans and How Homeowners can Utilize ThemWhen it comes to financing a home, there are several options to consider. One of them is a conventional mortgage, but there are also other types of financing such as a VA or USDA loan. These alternative financing options are still very common, and they provide buyers who may not be able to get a conventional mortgage with the option to buy a house and get financed.

If you plan on using an FHA mortgage, it's important to understand the benefits you may get from doing so along with the specific requirements that will need to be met. With this information, the home buying process can be handled more smoothly.

What is the FHA?

The FHA, or the Federal Housing Administration is a government organization that helps make home buying in Avon by the Sea or other real estate locales more affordable. While it does not actually grant mortgages, it 'backs' mortgages for lenders when buyers may be a little bit higher risk.

These buyers generally, though not always, have lower credit scores, or don't have a large down payment compared to traditional mortgage buyers. That doesn't mean they don't have the means to finance a home, though. They still have to have enough cash-on-hand to qualify for the house they want to buy, and there are requirements for their credit score and debt-to-income ratio.

How is An FHA Loan Different?

FHA loans are different because they offer borrowers a chance to get a home with just 3.5 percent down, instead of the 10 percent or 20 percent that is generally required with a conventional loan. The down payment may also be a gift from someone else, so it doesn't necessarily have to come from the buyers' funds.

FHA home buyers can essentially purchase a home without any of their own money as a down payment - by using a gift, and they can also have higher debt levels than most traditional mortgages might accept - as long as they have met all of the FHA requirements. In addition, FHA borrowers can often get a mortgage with a credit score that is above 580, whereas most traditional lenders will not accept a credit score at that level.

Can All Homes Be Financed With FHA?

Not every home can be financed through the FHA loan program. Homes in the FHA program need to be in relatively good shape, and if there are problems are found during the appraisal, they may have to be repaired before the loan can close. While FHA is open to a number of homes, they may not finance mobile homes, properties over a specific price point, multi-unit homes, or vacation homes. So when looking at luxury or oceanfront homes keep this in mind.

To find out if a home can be financed through the FHA, a buyer can work with their real estate agent and their mortgage company. These professionals can give them the answers they need before they fall in love with a home that may not be eligible for an FHA loan.

What About the Occupancy Requirement?

FHA has an occupancy requirement. The requirment states that the FHA borrower agrees to live in the home for at least one year. This is primarily to discourage people who 'flip' homes for a profit, or people who are trying to buy rental properties. The FHA program is not designed for investment-type home buying.

So FHA loans are different from other types of loans. They often assist people that may have lower credit and/or less downpayment monies get into a home.

Shawn Clayton, Owner/Broker, REALTORĀ®

Jersey Shores Luxury Home Expert
732-295-2222

Contact Shawn

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