Inquiries about FHA loan

[Joseph Shin]

I am fairly new to real estate (only 14 years old) and I was heard (from some people in the BP community) that i can (when older) can use an FHA loan and rent it out I can live for free. However while doing further research I was very confused on how to use and FHA loan. Any help with be greatly appreciated. Thank you.

[Account Closed]

Kudos to you for looking that far ahead into your future. 

I'm no expert but basically to get a regular mortgage banks and lenders want you to have 20% of the purchase price as a down payment and you have to have a pretty good credit score to qualify.

An FHA loan is designed to help out first time homebuyers who can't come up with the 20% down payment or have a lower than ideal credit score. You only need 3.5% as a downpayment for an FHA loan as for the credit score you need I'm not too certain. BUT you have to pay an additional fee each month called "private mortgage insurance." Once you build up some equity (equity is the percent of the house you own outright while the rest is 'owned' by the bank) the PMI will drop which will save you some money.

The idea is that you buy a multi-unit property, live in one unit and rent out the other unit(s). You can buy up to a four unit house with an FHA loan. Say you do buy a four unit house, your mortgage is $1500 a month so you live in one unit and rent out the other three for $500 a month each- the rental income will pay your mortgage and you can live for 'free.'

There are very strict rules regarding FHA loans. Certain properties are not eligible for the loan. You must personally live in the property for a certain amount of time- if you think 'oh I can make more money if I rent out ALL the units and live in my friend's basement' its a form of fraud and you can get heavy fines or jail time.

If this is your dream you can start making it happen today. Here's my advice to you. Keep learning all you can. Find a good mortgage calculator online and start playing around with the numbers- for example, did you know if you buy a $100,000 home with 3.5% down and pay on it for 30 years it will end up costing you MORE than $200,000?! That's how much the banks charge you for interest. BUT if you buy a $100,000 house with 3.5% down and pay an additional $100 a month you will save almost $25,000 dollars total and you will pay it off a lot faster. Start saving for that down payment- if you put $25 a month in the bank and don't touch it by the time you're 18 you will have about $1800. I'm not sure how much real estate costs in your area but in my area that's enough for an FHA loan downpayment. LEARN ABOUT CREDIT AND CREDIT SCORES. So many young people turn 18, rush out and get a credit card and very quickly ruin their lives. Your credit score is a very precious thing, it's your reputation with money and will help you get that loan. Credit scores are very easy to ruin and very hard to fix. For example, in the future you might have a buddy who asks you to co-sign on a loan so he can buy a car- don't do it. If he doesn't make the payments it will ruin YOUR credit.

Best of luck to you. Don't just follow your dreams- chase them relentlessly!!