FHA Loans/ Lower Down Payment Loan Program

FHA loans offer lower down payment options for Buyers. Many of our Buyers ask us about using these loan programs for a purchase, and several of our Sellers also ask us about these loan products, especially when they are considering accepting an FHA Buyer’s offer for their property.  As a Seller, it is beneficial to work with FHA Buyers, as they tend to pay premium prices for properties, since they have a lower down payment, and usually need to compete with higher down payment or all cash Buyers.  Allowing FHA Buyers to submit an offer on a property will typically net a Seller more money from the sale.    

FHA Buyers can purchase many types of properties, including some short sales and bank owned properties.  A Buyer using an FHA loan program can purchase a property with as little as no money down.  If the Buyer’s income is under a certain threshold, then the Buyer can qualify for the down payment assistance program, which is no money down. This down payment requirement applies to single family homes, condos, and townhomes.  A Buyer will need funds for closing costs for their escrow fees, lender fees, title fees, etc. For the no money down program, a Buyer’s closing costs are typically 2.5% or less of the purchase price.  For example, on a $500,000 property, a Buyer using this program will need about $12,500 for closing costs, but wait… If a Buyer does not have $12,500 available, we can ask the Seller for a credit for the Buyer’s closing costs, so the Buyer comes out of pocket essentially $0 for the transaction, yes I said, $0!  If a Buyer’s income is over the income threshold requirement for the no money down program, then the minimum down payment is 3.5% down.  This down payment requirement applies to single family homes, condos, townhomes, and duplexes.  Using the prior $500,000 purchase price, a Buyer’s down payment in this scenario would be $17,500.  This down payment can be given to a Buyer in the form of a gift.  For this loan program, our team usually estimates closing costs for a Buyer at 2.5% of the purchase price too.  This figure is normally on the higher side.  So, in our example, a Buyer would need $17,500 for a down payment, and an additional $12,500 for closing costs, making the total estimated out of pocket $30,000 for the 3.5% down Buyer, but wait… Many Buyers do not have $30,000 readily available for a purchase.  In this case, we can request a 2.5% credit for closing costs from the Seller for our Buyer.  This would reduce the total out of pocket or gift amount to $17,500 for the 3.5% down payment Buyer.  To use an FHA loan, the property needs to be in livable condition since the Buyer is not putting a lot of money down.  An appraiser will call out issues such as chipping and peeling paint, missing fixtures such as toilets, sinks, etc., missing outlet switches, missing flooring, missing smoke detectors or carbon monoxide detectors, etc.  A home can be in “older” condition, and still be considered livable.  Any items an appraiser calls out need to be corrected before the Buyer’s lender will allow a loan on the property.  These items can be fixed by the Seller, the Buyer, or a combination thereof.  Termite work is not required to be completed for an FHA loan during an escrow, contrary to what many people think.  Many people call FHA loans the first time Buyer program.  The rule with FHA loans is that you can only have one FHA loan open at a time, with the exception of a few scenarios.  Therefore, you can already own property and use an FHA loan for your next purchase, as long as you do not currently have an FHA loan open on another property.  If you are purchasing a condo or townhome utilizing an FHA product, the condo complex will need to be approved by FHA.  FHA approvals expire every two years.  If the complex you choose is not approved, our lender’s team will work on the complex approval for our team at no charge to the Buyer, Seller, or complex.  Team Whitney is very experienced with FHA loan products, so whether you are a Seller or a Buyer, we will be here to help navigate you through these intricate loan processes. 

For more information or to set up a personal consultation, please contact Danielle Whitney Moore with Team Whitney (Keller Williams Realty L.A. Harbor) at (310) 987-9103.