FHA Loans + & –

The FHA gives hope to many future homeowners who are short on cash.

What is it?

The FHA is a government organization that insures loans. It doesn’t give loans; it insures them. This makes FHA-backed loans very safe for banks because the FHA assumes the risk. But since it acts like an insurance company, you pay a premium and the FHA might not want to insure your loan if they don’t think the property is worth what you’re paying.


– You can put down as little as 3.5% of the purchase price.

– You can go through a normal (FHA-approved) lender.

– You have certain move-in rights as an owner-occupier, and can sometimes relocate low-paying tenants and therefore raise the value of your property.

– You get good interest rates.


– You technically have to live there for two years.

– If no unit is vacant, you have to pay the tenants to move out (between $8,000-$20,000).

– Because the FHA appraiser is strict, there’s a chance your deal might not go through. This means many sellers will overlook  your offer in favor of an all-cash or conventional loan offer. And that means your pickings are slim in Los Angeles.

– You pay an insurance premium:

– You pay a 1.25% upfront premium (UFMIP). Luckily, this can be added to your loan amount.

– Additionally, you pay 1.25% of the total loan per year as a recurring premium.

– You pay 0.25% extra if the loan amount is above $625,500.

– Thankfully, you stop paying the premium when your loan-to-value ratio lowers to 78% (and you’ve already been paying for 60 months).

So yes, there is hope. But you have to know what you’re up against. Let me know if you’re in this market because this is what I specialize in.

Read More