New FHA Loans: What You Need to Know

• New FHA restrictions just came out. Here’s the upside.
• The loan limits for SFR in L.A. are $729,750 (same as “jumbo conforming”).
• Loan limits for 2 units are $934,200.
• The interest rate is 6% as of this writing; however, there is mortgage insurance (see below).
• Minimum down payment is 3% (not including closing costs).
• Fixed rate and Adjustable rate programs are available.
• NO MINIMUM FICO REQUIREMENT (this is huge).
• Must be full documentation loan. No stated income loans.
• No buyer reserve requirement (this is also huge).
• No income limits.
• The seller can contribute up to 6%, including closing costs, although the seller does not have to pay the closing costs.
• There can be non-occupant co-signers on the loan.
• You do not have to be a first-time buyer.
• Gifts are permitted for the entire 3% borrower investment and don’t need to be “seasoned.”
• Gifts are also permitted for all closing costs & pre-paid items.
• Down payment assistance programs are permitted, such as city first-time buyer housing programs.

Now, here’s the downside:

• There is mortgage insurance. It equals either 0.5% point per month, or 1.5% points up front. The up-front payment is deductible from your taxes during the year that you buy.
• There are stricter appraisal requirements:
• Any operable or useful element in the subject property must have at least 2 or more years of useful life or it must be replaced.
• The appraiser must be FHA-approved.
• The appraiser can require a separate inspection upon any “visible” defect or if he/she has knowledge of any existing problem.
• The property must be structurally sound.
• It must have a useable garage.
• The property cannot have code violations.
• Each living unit much contain domestic hot water, sanitary facilities and a safe method of sewage disposal. Connection to public systems is required if available.
• Heating systems must be adequate for healthful and comfortable living conditions.
• Condo projects must be pre-approved; they can be spot-approved but this is much more difficult.
• Condo projects must have sufficient reserve funds.