The FHA loan program is not just for first time home buyers. It is also for move up buyers or just any home buyer with only 3.5% for a down payment. Traditionally thought of as a first time buyer loan program, there are plenty of Orange County homes buyers whose best, or only, loan option is FHA.
What is Unique about FHA?
- 3.5% down payment to a loan amount of $625,500. There are Conventional loan programs that only require 5% down up to a loan amount of $417,000, but only FHA goes allows 3.5% down all the way to a loan amount of $625,500. This means an Orange Countean (my word) can buy a home $648,000 with only 3.5% down payment, or in this case $22,680. Conventional financing requires 10% down, or $64,800 in this case. And this is a big reason why move up buyers will choose the FHA loan program.
- The down payment can be a gift. Traditionally this was very unique, however now Freddie Mac will allow gift for the down payment, even when it’s only 5%. However, not all lenders follow that guideline, making FHA a great alternative.
- FHA allows for higher debt to income ratios than Conventional financing. When a buyer is only putting 5% down on a Conventional loan, the highest front or back end debt to income ratio allowed is 45%. With FHA, it’s common to get loan approval with a “front end” debt to income ratio of 46.99% and a “back end” debt to income ratio of 56.99%. For someone who is pushing their qualification to the max, FHA may be the best loan option.
- FHA only requires a two year wait period after a bankruptcy. Conventional financing requires a 4 year wait period after bankruptcy. For someone looking to buy a home, waiting two additional years to buy a home can be a long time. With FHA, all it takes is a little re-established credit and its possible to buy a home.
- FHA only requires a 3 year wait after a foreclosure, short sale, or Deed in Lieu. Conventional guidelines require a 7 year wait after a foreclosure. For a short sale or Deed in Lieu, when the loan to value is higher than 90% the wait period is also 7 years. That is a much longer wait than what some has to deal with if getting an FHA loan.