To use or not to use FHA loan?

3 Replies

Hello BP! I'm new here and have recently become obsessed with learning about real estate investing. I am looking to purchase my first property and would appreciate any advice!

I'm currently living in South San Francisco, CA with my mother and am not paying rent, just helping with utilities. I have 10k saved up and earn about 35k annually. My credit score is 808. I was initially considering purchasing my first home as an investment property outside of California where homes are more affordable. However, I qualify for an FHA loan and potentially a down payment assistance program if I purchase a home as my primary residence. Ideally I'd like to live on the West coast, preferably in northern California. As you know, homes are very expensive here, with the exception of some foreclosed and auction homes I've come across. The options I have come up with are:

1. Forgo the FHA loan and purchase an affordable investment property outside of California

2. Use FHA loan and down payment assistance program to purchase a home in California with extra rooms or an in-law/multi-unit so I could live there and rent out the extra room/unit. (Of course this depends on if I can find an affordable place, which has been very difficult so far, with the exception of some affordable foreclosed/auction homes).

*I'm in the process of getting my loan pre-approval, and I will have a better idea of what I can afford once that is complete.

Would you recommend forgoing the FHA loan and purchasing an affordable property out of California, or try to search for an affordable home in California using FHA loan? Also, any thoughts on purchasing foreclosed/auction homes would be appreciated - is this a viable option? I feel this may be the only way to afford a home in California..

If you have any other suggestions I have not listed here, please advise!

Thank you so much in advance!

In your situation you'll probably need to just keep saving I'd be very interested to see what you get pre-approved for, but based on what you've told us I'd be shocked if it was anything over $250k which won't get you anything in the Bay Area.  Even buying out of state will be tough because you'll likely need a down payment of 20%+ and you want to have cash reserves for when something goes wrong at the property and you have to fix it.

An FHA loan is for people with poor credit. I wouldn't recommend using one. Real question how do you have a credit score of 808?

That's incredibly high so kudos to you.  

Thank you both for the advice! I received my preapproval for 150k so I am probably going to not use an FHA and purchase out of state once I have a little more saved up.

As for my credit, I always pay off the full amount on my credit card every month, and I actually have 2 credit cards which I never use. I've had all my credit cards for 10+ years except for 1. I suppose that all adds up to my high score :)

Thanks again!