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Questions To Answer Before You Start Househunting

April 17, 2024

FHA Home Loan

Making assumptions about the home loan process can hurt you. For example, some borrowers believe the FHA loan program is wrong for them because they aren’t financially disadvantaged. That assumption is not true.

Others wrongly believe it is impossible to qualify for an FHA loan because they have less-than-perfect credit.

This is sometimes true depending on the circumstances but if your FICO scores are above 500, this type of mortgage is worth considering.

Additional lender standards may apply but the FHA loan program offers more forgiving credit requirements than some conventional equivalents.

Any Residence Can Be Purchased With An FHA Mortgage?

FHA single-family home loans are not permitted for investment properties.

That said, it’s possible to use an FHA mortgage to buy a one-to-four-unit property but the borrower must live in at least one of the units as their home address.  Meeting this requirement does NOT preclude the borrower from renting out unused units in the home.

FHA home loans are not offered for properties located too close to oil wells, high-pressure gas pipelines, or other hazards, and they are also not provided for homes in certain coastal flood areas.

FHA Home Loans To Buy Second Homes?

Borrowers quickly learn multiple FHA loans are not commonly approved. They also learn there may be exceptions due to changes in career or family size.

These issues require working with the lender to consider an exception to the policy, which is typically allowed when an FHA borrower meets specific requirements spelled out by the FHA.

You cannot use an FHA single-family home loan for the purchase of vacation homes, time shares, or any house you don’t plan to use as a primary residence.

Borrowers can request a new FHA loan for a larger house if their family expands or they need to change residences to remain within what the FHA calls “reasonable commuting distance” from their primary employer.

Do FHA Loans Allow Me To Cancel Mortgage Insurance?

Some mortgage loans allow you to sidestep carrying private mortgage insurance. This is typically permitted when you pay 20% down at closing time. 

FHA loans require a mortgage insurance premium payment for the entire loan with one exception for those paying 10% down at closing time.

These borrowers must meet FHA requirements to cancel the mortgage insurance, which is possible after 11 years if a larger downpayment is made. Cancellation is not automatic.

Do FHA Loan Options Include A Home Equity Line Of Credit?

This is considered true because there is an FHA cash-out refinance loan option that lets borrowers tap into equity in the home. Some people use the term “home equity loan” when they really want a home equity line of credit or HELOC. If that describes you, it may be wise to seek other options. 

The FHA has no option for a home equity line of credit that permits the borrower to borrow against equity built up in the home over time.

If you are not sure how such issues affect your FHA home loan process, consider making an appointment to speak with an FHA lender about the issues.

Joe Wallace - Staff Writer

By Joe Wallace

Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.

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FHANewsBlog.com was launched in 2010 by seasoned mortgage professionals wanting to educate homebuyers about the guidelines for FHA insured mortgage loans. Popular FHA topics include credit requirements, FHA loan limits, mortgage insurance premiums, closing costs and many more. The authors have written thousands of blogs specific to FHA mortgages and the site has substantially increased readership over the years and has become known for its “FHA News and Views”.

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