When SHOULD You Consider an FHA Loan?

There are many times when an FHA loan is your absolute BEST option. As a homebuyer OR as a seller; it's important to recognize the scenarios where an FHA loan will be the best financing option for you OR your buyer, and potentially facilitate the highest price for your property.  

  • Multi-unit Properties: On 2-4 unit properties, an FHA loan can be your most powerful financing tool. Homebuyers can buy 2-unit properties up to $830,000 with 3.5% down while using gift funds. For 3 & 4 units, the underwriting criteria is a bit more complicated; but can still be offered. For example, a 3-unit property listed at $975,000 can be purchased with 3.5% down. Think about that, $45,000 total out of pocket expenses, or gifted for the purchase of a nearly $1m home.  
  • Challenged Credit: There are a hundred reasons why well qualified homebuyer may have a challenged credit score. Divorce, failed business, medical issues, working in finance back in 2008 & 2009, etc., are all reasons to potentially have issues with credit. FHA loans serve as a tool for these homebuyers to get back into the housing market quicker. Even with 10% or 15% down, if credit scores are under 700 - an FHA loan may be the best option.  
  • 100% Gift Funds, 100% Co-Signer: A homebuyer right out of college or in- between jobs can still buy a house by using a co-signer. FHA loans allow for the most lenient guidelines when it comes to using a co-signer and/or gift funds on single family residences. Most scenarios allow for 100% of the down payment + closing costs to come via gift funds. Most FHA scenarios allow for a co-signer to cover 100% of the cost of the property and other expenses carried by the primary borrower. Adding a co-signer can offer a huge boost to the purchasing power of a new buyer who doesn't yet show enough income to qualify on his or her own.  
  • Short Sale, Bankruptcy or Foreclosures: Most conventional and jumbo loans require that a borrower wait for 7 years after a foreclosure, 4 years after a short sale and 4 years after a Bankruptcy before getting back into the housing market. FHA loans allows us to shorten this time line to 2 years after a foreclosures, 2 years after a short-sale/deed in lieu and 2 years after a Bankruptcy. However, if the homebuyer was current on the last 12 months of his or her mortgage payment, but still suffered from a short sale, there may NOT be a waiting period at all.  
  • You Need a Large Credit to Close Escrow: FHA loans are priced in a manner that allows lenders and sellers to offer more credits to a borrower while still keeping the rate relatively low. The seller is allowed to give a 6% seller concession (6% of the purchase price in case you were wondering). For homebuyers that have plenty of cash-flow; but little in savings, an FHA loan is probably the right vehicle to buy a home.