When in the market for a multi-family financing service, know that you have several options, such as those that the Federal Housing Authority (FHA) insures. This division of the U.S. Department of Housing and Urban Development (HUD) backs up both residential and commercial loans.
There are many reasons consumers want to take out commercial loans, one of which is to buy an apartment that they can rent out and generate income from. In case your plan involves something like this, it’s important you have all those questions about FHA/HUD loans answered before you seek financing from other sources.
Are FHA loans the same as HUD loans?
The FHA is the governmental organization responsible for insuring loans that the HUD issue to borrowers. In other words, if borrowers default on these FHA-insured HUD commercial loans, the government takes over in repaying the money still owed to the lender.
Why do HUD loans come with lower interest rates?
As the government backs up the FHA-insured HUD loans, lenders feel more at ease knowing that they will still get their money back even if the borrower doesn’t repay them. Thus, they can afford to charge their customers with lower interest rates, seeing that they don’t have to put in place larger security and protection against the risk of defaulting.
Is there a catch to these lower interest rates?
Like with every other huge financing services, you have to meet certain criteria to qualify. First, you have to do your research and find an FHA-approved lender. You also have to have a FICO score of at least 580 to become eligible of the very low down payment requirement of just 3.5%.
In case you have a FICO score lower than the required, you can still qualify for a HUD loan, although you have to put down a bigger amount: at least 10% of the purchase price.
But remember: this is still lower than the national average though, making it a more attractive option for your commercial loan needs.