FHA Residential Home Loan Options

August 27, 2024

What are a borrower's options under the low down payment FHA home loan program? There are loans for condos, manufactured homes, and traditional suburban houses. Below, we examine some of the most utilized FHA loan options.

FHA 203(b) Purchase Loan

The 203(b) loan is one of the most commonly used FHA single-family home loan programs. It's used for purchasing or refinancing one-to-four-unit properties that serve as the borrower's primary residence. These properties are typically suburban homes, rural houses, or city dwellings.

Key Features and Benefits:

• Lower Down Payment
  Borrowers may qualify for an FHA mortgage with as little as 3.5% down for a one to four-unit property.
• Credit Flexibility
  The FHA considers borrowers with less-than-perfect credit. FHA guidelines include FICO scores of 580 or better for maximum financing.
• Assumable Mortgages
  Qualifying buyers can assume an existing FHA loan if the lender agrees to the transaction.
• Gift Funds
  Gift funds from family, friends, employers, or local agencies can be used for down payment and closing costs. These funds must meet FHA and lender guidelines.

Eligibility Criteria

• Primary Residence
  The property purchased with an FHA loan must be the borrower's main address or primary residence. No investment property allowed.
• Property Standards
  The property must meet the FHA's minimum property standards via an FHA appraisal.
• Mortgage Insurance
  Borrowers pay mortgage insurance premiums (MIP) for either 11 years or the lifetime of the loan.

FHA Condo Loans

FHA condo loans allow individuals to purchase or refinance a condo unit within an FHA-approved project.

Key Features and Benefits:

• Benefits
  Similar to 203(b) Loans, Condo loans have the same FHA benefits, such as lower down payments and credit flexibility for loan approval.
• Community Living
  Condo ownership offers community and shared common spaces. Owners share the cost of upkeep and maintenance.
• Project Approval
  The condominium project must be FHA-approved or meet standalone condo guidelines in an unapproved project.

Eligibility Criteria:

• FHA-Approved Project
  In most cases, the condo project must be on, added to, or have an exception for being on the FHA's approved list.
• Owner-Occupancy
  The borrower must intend to live in the unit as their home address.
• Prohibited
  No investment properties or non-resident landlords.
• Unit Eligibility
  The unit must pass the FHA appraisal process.

FHA Mobile Home Loans / Manufactured Housing

FHA mobile home loans finance the purchase or refinance of manufactured homes (mobile homes).

Key Features and Benefits:

• Housing Option
  Manufactured homes can be a more affordable option than suburban homes for some borrowers.
• Loan Options
  FHA loans for these properties can include loans for modular, manufactured, and mobile home housing.
• Flexibility
  Homes can be placed on owned or leased land. FHA loans can be used to buy both the home and the land.

Eligibility Criteria:

• HUD Code Compliance
  The home must adhere to the HUD Code and meet FHA age restrictions.
• Permanent Foundation
  The home must be on or installed on a permanent foundation.
• Land Ownership or Lease
  This depends on the loan program and other variables.

FHA Loans for Multi-Unit Properties

FHA loans for multi-unit properties are for purchasing or refinancing properties with up to four units, one of which is the borrower's primary residence. The borrower can only be approved for an FHA mortgage for one of these properties if they certify they will be an owner/occupant after closing day.

Key Features and Benefits:

• Rental Income
  Multi-unit properties can generate rental income.
• Live-in Investment
  Borrowers can live in one unit and rent out others.
• Loan Terms
  These loans may feature more competitive interest rates and lower down payments.

Eligibility Criteria:

• Owner-Occupancy
  As stated above, FHA loan guidelines in HUD 4000.1 require the borrower to live in one of the units as the primary residence.
• Rental Income
  The property's rental income must meet specific criteria. Experience as a landlord may be necessary in this area.
• Property Condition
  The property must meet FHA standards for multi-unit dwellings via an FHA appraisal.

FHA loans have many uses. You can buy, refinance, renovate, or build from the ground up using an FHA mortgage. It's wise to compare lenders, loan options, and even the cost of multi-unit homes versus a single-unit property. You will be glad you compared them.

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