Are the permissions currently set up for the user? I know you mentioned changing the permissions around, maybe it's an issue with setting the docroot to match the parent directory? (/home/user/html/ should be same user/group as /home/user)
Yes, the permissions are correct... now i even created files as the user itself (su user)
Still 404 not found.
Not seeing any debug in logs at all... Not seeing anything :/, disturbs me!
If you check what user the server is running as, could you su to that user and see if you can get to that directory? The only possible cause is permissions. (which would cause the server to think that the file does not exist)