Basic FHA Questions and Answers

By Ryan Jensen

Q. Who qualifies for FHA loans? Aren’t the only for first time homebuyers and those with lower income levels?

A. Actually, FHA loans are open to all U.S citizens and permanent residents and there is no maximum income level a borrower can have to apply. It is also not a program strictly for first time home buyers (although it is very attractive to first timers). You need to be able to document your income however and cannot currently be in bankruptcy or foreclosure on another property.

Q. What is the maximum loan amount allowed on FHA loans?

A. The standard loan limit for the King County area had been $362,790. However, the federal government has temporarily increased that limit to $567,500 for the rest of 2008. After that it is slated to be reduced to the old limit, but that could change depending on economic circumstances. Expect a mild premium on interest rates for loans over the old limit and up to the current $567,500. Loan limits will vary by area.

Q. Can I buy a rental (investment) property with an FHA loan?

A. No. These loans are for primary residences only. No second homes either. However, you could buy a duplex, triplex, or four plex and rent out additional units as long as you live in one of them yourself and maintain that as your primary residence. 

Q. What is the minimum credit score required for an FHA loan?

A. This is one of the great things about FHA. In many cases their really isn’t a minimum credit score required. FHA approvals utilize an automated underwriting engine that approves files based on a number of factors (income, assets, loan to value, credit history, etc) to determine whether or not you are approved. If you are strong in some of these other areas, you could be approved with a lower credit score. I’ve seen scores as low as the mid 500’s get approved.

Q. How do FHA rates compare with those of conventional loans?

A. Surprisingly, FHA rates tend to be quite good. Often times, they can even be lower than the rates you will see published with standard lenders. You can also get FHA loans with 0 points and no closing costs if you are willing to have a slightly higher rate.

Q. Does FHA allow for 100% financing if I don’t have a down payment?

A. Yes and no. Technically, FHA loans cap out at 97% of the purchase price and they ask you put down that other 3%. However, that 3% down payment can be gifted to you. This has given rise to a number of down payment assistance programs like Nehemiah. Nehemiah gives the borrower a gift of the needed 3% down payment at closing. The seller of the home will then pay that money back to Nehemiah from their proceeds of the sale. Sellers will generally agree to this if the buyer agrees to increase the purchase price by that same amount or if the seller is very motivated to sell. I have done a number of deals with this program and it really does work out quite well. So yes, you can get into a home still with 0 down.

For more information on FHA Loans and other programs, please email me at rjensen@thejensengroup.net.