When a 5-Year FHA Loan Becomes the Winning Strategy

In today’s market, qualifying a buyer is not always about credit scores or down payment. Sometimes the challenge is income structure.

Recently, we worked with a buyer who had strong credit, solid assets, and responsible financial habits, but hubby has a new business that is doing well, but we don’t have a full year of taxes yet! That meant the debt-to-income ratio was tight. Very tight.

The solution was not pushing the price lower. It was lowering the payment strategically.

Why the 5-Year FHA ARM Worked

For many years, 5-year adjustable-rate mortgages did not make sense in most situations. In this market, however, they are becoming extremely useful.

Here is why.

An FHA 5-year ARM qualifies at the start rate. That is critical. It does not qualify at a stressed or future adjusted rate. It qualifies at the actual note rate.

By structuring the loan as an FHA 5-year ARM and buying the rate down, we were able to secure a 4.49% fixed rate for the first five years on a $600,000 loan.

That reduced the payment by roughly $300 dollars per month compared to the 30-year fixed option.

That $300 dollar difference was the key. It moved the buyer from not qualifying to qualifying comfortably.

The Purchasing Power Impact

A 1% improvement in the rate can significantly increase purchasing power. In this case, the difference allowed the buyer to qualify for approximately nine percent more home.

That does not mean stretching someone beyond their comfort zone. It means giving them flexibility and room to compete in a competitive market.

For agents, that flexibility can be the difference between writing an offer with confidence and losing out due to qualification limits.

The Built-In Strategy

The rate is fixed for five years. The buyer has the ability to refinance at any time.

If rates decrease within that window, refinancing into a long-term fixed option is available. If rates remain stable, the client still benefits from the lower payment during the early years of ownership.

It creates breathing room now while preserving future options.

Why This Matters for Your Clients

Not all ARM products qualify the same way.

FHA 5-year ARMs qualify at the start rate. Conventional 5-year ARMs typically qualify at a higher qualifying rate. Conventional 7- and 10-year ARMs often qualify at the note rate.

Those distinctions matter when a buyer is close to approval thresholds.

In a market where qualification has become more complex, having access to all product options allows us to structure solutions rather than deliver denials.

For agents, that means more clients get approved, more offers get written confidently, and more transactions reach the closing table.

When guidelines are tight, strategy makes the difference.

If you have a buyer who feels close but not quite there, let’s review it together. There is often more than one way to structure a solution.

Please let me know if you have any questions or if you or any of your clients, friends, or family members need my guidance. I’m just a call, text, or email away.

📞 Direct Line: 661-291-2222 – Text OK

📞 Cell: 661-714-6258 – Text OK

📞 Office: 661-260-2970 ext. 2222 – Text OK

📧 Email: Mike@AugustaFinancial.com

But wait, there’s more…

Interest Rates

This week has not been a good week for rates, or at least not yet. We hit a 3-year low on Friday, only to move to mid-February rates over the past couple of days. Some are saying inflation, while others are blaming the new war and more Government spending! Let’s hope we end today on a good note and have a great rate hump day tomorrow!      

Loan Programs

• We do loans on Non-warrantable condos!  
• We offer 12-day escrows for pre-approved buyers, including conventional, FHA/Jumbo/Bridge loans.
• We provide loans in all 50 states, so call me with anything you need.
• Government loans (FHA/VA/USDA) are in the 5s.
• Conventional loans up to $832,750 are in the mid to high 5’s.
• High-balance loans from $832,751 to $1,249,125 are also in the high 5 and 6s.
• Jumbo loans above $1,249,125 are in the high 5’s and 6’s.
• ARMS in the 5’s and some in the 6’s
• Bank statement loans are available again with 10% down, with larger down payments in the 6’s++.
• Profit and Loss Statement loans require 20% down - no bank statements needed, only a profit and loss statement!
• 0 down loans are available in the high 6s, with a minimum credit score of 620, up to $1,325,000.
• Private Money lenders offer Hard Money Loans with 35% down.
• No-Ratio Loans require a 30% down payment.
• DSCR (Debt Service Coverage Ratio) loans are available with as little as 15% down.
• Bridge Loans typically have an interest rate of 7.99% with limited fees, helping you get where you need to go!
• 3/2/1 Buydowns, 2/1 Buydowns, and 1/0 Buydowns are available at great starting rates!

Please note that interest rates are subject to change without notice, and the information above reflects LA County Loan Limits.

**Good News for Condos:**   

Nada today!  

**Bad News for Condos***     

Moorpark Terrace: 13543 Magnolia Blvd – Deferred maintenance / Critical repairs

Las Ventanas: Balcony Issues!  

Diamond Head: We have some concerns over there. Per Fannie Mae, certain parts of the complex are approved, while other parts have outstanding critical repairs.  

Buenaventura Gardens: Restriction 22 – Portions of the project have outstanding critical repairs. Lender to review the CPM comments for more details.  

CONDO HELP!!!

If you have a listing or a buyer interested in a specific condo and are unsure whether it is warrantable or Non-warrantable, please call me, and we can look up Fannie’s list in real-time. We don’t know when something has changed, and it would be impossible to track everything day by day, but we don’t mind looking up a few items each day.  

The full state of California’s naughty list has been added to:

MikeMeena.com! See the link below:

https://mikemeena.com/non-warrantable-condos/

Let me know if you hear anything new about condos or townhouses.

I am available every day if you need anything.    

📞 Direct Line: 661-291-2222 – Text OK

📞 Cell: 661-714-6258 – Text OK

📞 Office: 661-260-2970 ext. 2222 – Text OK

📧 Email: Mike@AugustaFinancial.com

Have a great day and an even better tomorrow! Please call me when you have a client who needs to borrow!