There is a misconception that FHA is exclusively for First-time homebuyers. In reality, an FHA loan can be use for your move-up  home as well, let me explain. Let’s say that your primary residence is a 3 bedroom/2 bath home, your family has grown and you want to buy a larger home.

FHA could be the perfect mortgage option for you. You get a fixed rate, come up with a FHA’s low down payment of 3.5% and you can even finance repairs(this is another topic). Now before you jump up and down, there are a couple of thing you need to make sure you have in place, according to FHA Underwritting Guideline Hanbook 4155.1

1. The new house needs to be a move-up home. For example, I recently helped a client that had a 3 bedroom 2 bath, 1200 sqft home and her family had grown. The new house was 3,500 sqft and 5 bedrooms 3 bath home. She got FHA financing.
2. You need to provide evidence that your current home will be rented. What kind of evidence you asked??? Well, you will need to provide  rental or lease  agreement, security deposit check and show proof that the check was deposited into your bank account(You can take care of all that once you are in escrow).
3. You need to have 25% equity in your current home (primary residence). In other words, if  you owe 100,000 on your current home and it is worth 125,000 or up, then you meet the 25% equity requirenment. Once you are in escrow, the lender will order an appraisal for your curent home.

If you don’t have 25% equity, then the current  mortgage payment and the new mortgage payment  will be used to qualify.  So your current full mortage payment is $1,350, the new mortgage payment is $2,400 and $400 in credit debt.  The debt being use  to qualify will be $1,350+$2,400+$400= $4,150. FHA might also asked you to have 6 months of your current mortgage payment saved. This could be done through regular savings or 401k earnings.

It is very important that you pay close attention to the above information because knowing the facts will save you thousand of dollars and prepareyou to buy your move-up home.

If you have  questions or a scenario, give me a call at 951-538-7435

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