The Credit Union loan might be a good stopgap, although only a temporary one. Certainly preferable to FHA, most anything is these days. One alternative to consider would be the Fannie Mae 95% or 97% loan. In both cases, you could gift him the down payment (going to a Fannie Direct lender). There would be PMI, but the rate would be fixed, and likely lower than the 2 year ARM the credit union is offering.