The primary appeal of an FHA-backed loan is its very low down payment requirement of 3.5%. But John Settles—FHA loan expert and DC branch manager for Wells Fargo—uncovered a few other, lesser-known benefits of this loan product.
What is the difference between the loan limits for conventional and FHA loans?
JS: FHA loans have higher loan limits than conventional loans. The maximum FHA loan limit for a single-family home in DC is $729,750, compared to a $625,000 limit on conventional loans. For buyers in that price point, this can make all the difference.
For example, if a buyer purchases a $755,000 house with conventional, non-conforming loan, they’d have to put down 20%, or $151,000; but with an FHA loan at 3.5%, their down payment would be $26,000—a difference of $125,000.
How do FHA loans treat credit issues?
JS: FHA loans are more accommodating than conventional loans in regard to both debt-to-income ratios (allowing for as much as a 49-50% DTI) and credit scores. The FHA reviews just one to two years of credit history and allows for scores as low as 640.
What are the advantages of having an FHA loan when purchasing a multi-unit property?
JS: FHA allows the same low down payment of 3.5% for multi-family properties (2-4 units) as it does for single-family homes. Multi-family properties purchased with a conventional loan, meanwhile, have a down payment of 20%.
To quantify those percentages, here’s an example: If you buy a 3-unit building in NW for $900,000, your down payment on an FHA loan would be $31,500; your down payment with a conventional loan would be $180,000.
In addition to a lower loan rate, FHA allows you to count 75% of the rental income on a multi-family property as part of your qualifying income, enabling you to afford considerably higher monthly payments. The end result? You could consider a duplex or a three-unit home in a neighborhood that you couldn’t otherwise afford. (Note that you must live in the property to do this.)
What does it mean that FHA loans are assumable?
JS: This means that the buyer of your home can assume your loan at the rate you initially secured. This is particularly valuable now, with rates at record-breaking lows. When the time comes to sell your property, interest rates will almost certainly be higher than today. The assumability of your FHA loan will give prospective buyers access to that historically-low rate, making your home a better deal than comparable properties.
Get in touch with a loan expert, like John Settles (NMLS448870), by phone at 202-216-5702 and find out if an FHA-backed loan would work for you. Or request a consultation by visiting the Wells Fargo website here.
This article originally published at http://dc.urbanturf.com/articles/blog/hidden_benefits_of_fha_loans/6316
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