An FHA loan is a government-insured loan that allows as little as 3.5% down payment. Besides allowing little money down, its other advantages when compared to a Conventional loan is that it typically carries lower interest rates, it is more forgiving with lower credit scores and it has a higher Debt-to-Income ratio threshold. The biggest downside to FHA financing is that Mortgage Insurance is required for the life of the loan. If you have a high credit score, Conventional is usually the way to go, but an FHA loan will certainly help open the door to homeownership for many people, especially if their score is in a lower range.
If saving for 3.5% down payment is still a challenge, I do now have a couple lenders that are offering that 3.5% as down payment assistance. The assistance would be paid back as a 10 Year Fixed 2nd loan at an interest rate that is two percentage points higher than the 1st mortgage interest rate you lock in at. A few other highlights, especially in how it differs from other assistance programs are:
- No first time homebuyer requirement
- Non-occupant co-borrowers are allowed to help qualify
- High balance loan limit maximum (in our high cost Bay Area counties, that loan limit is $1,149,825)
- No income limitations
- Minimum credit score requirement of 600
- Single-family home, Duplex, PUD and FHA-approved condominiums all allowed
If you are unable to come up with the 3.5% down payment, this may be the right product for you. The interest rate is higher than a standard FHA loan, but it can help get you in the door to homeownership. Send me an email if you would like to review your specific scenario.
