What is FHA Loan?
An FHA loan is a residential mortgage insured by the Federal Housing Administration, allowing 3.5% down payments and 580+ credit scores. For investors, the relevant detail is that FHA loans are assumable — a buyer can take over the original borrower's rate and terms.
FHA loans are designed for primary-residence buyers, but the assumability provision creates investor opportunity. When an FHA loan was originated at 3-4% (pre-2022) and rates are now 7%+, taking over the existing FHA loan is hugely valuable — you preserve a sub-market rate.
Process: the buyer applies through the lender for formal assumption, demonstrates ability to make payments (DTI, credit), pays a small fee (typically $500-1,500), and the lender substitutes the buyer for the original borrower. Far simpler than a new mortgage approval.
For investors, the catch is that FHA loans require owner-occupancy at origination — and the assumption typically requires the new buyer to occupy too. Investors get around this by buying with intent to occupy briefly, then converting to a rental after 12-24 months (the typical FHA occupancy requirement).
Concepts that connect.
A "subject-to" deal is when an investor buys a property and takes title, while leaving the seller's existing mortgage in place — the investor makes payments on the seller's loan. Used to acquire properties with locked-in low rates or when the seller is behind on payments and needs to walk away.
Loan-to-value ratio (LTV) is the loan amount divided by the property's appraised value, expressed as a percentage. LTV drives lender pricing, down payment requirements, and PMI thresholds. Lower LTV = lower risk to lender = better rates and terms.
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