Federal Housing Administration Loan
Federal Housing Administration (FHA) loans allow you to buy a home with a relatively small down payment. FHA loans promote home ownership by making it easier for people to qualify for a mortgage.
What is an FHA Loan?
An FHA loan is insured by the Federal Housing Administration. If the buyer defaults on the loan, the FHA will repay the bank. This guarantee means that lenders are more willing to offer loans to buyers who might not otherwise qualify.
FHA loans require borrowers to pay an upfront mortgage insurance premium (MIP) of 1.75%. They also pay a modest ongoing fee with each monthly payment. These collected fees will be used to repay the bank in the event of a default.
Why Should You Consider an FHA Loan?
FHA loans offer some attractive benefits, but that doesn’t mean they will be a perfect fit for every buyer. Let’s take a look at some of the reasons you might consider this type of loan:
- Lower down payment—FHA loans allow you to buy a home with a down payment as small as 3.5%.
- Alternative money sources—You can use gift money for down payment and closing costs. Additionally, in a buyer’s market, the seller may offer to pay up to 6% of the loan amount toward closing costs.
- Assumable—A buyer can “take over” your FHA loan and benefit from lower interest rates.
- Easier to qualify—If you have been through bankruptcy or foreclosure, or if your financial circumstances make it difficult for you to qualify for a conventional loan, an FHA loan may be a good choice for you.
How do you qualify for an FHA Loan?
Qualification requirements vary from lender to lender and may be stricter than those set by the FHA, so it’s always best to speak with each lender individually to determine whether you qualify.
The FHA requirements themselves make it fairly easy to qualify:
- Income limits—There are none. You’ll simply need to show that you can repay the loan.
- Debt to income ratios—In order to qualify for an FHA loan, the amount you spend on monthly debt payments needs to be “reasonable” when compared to your monthly income. In general, your debt may not be higher than 31% of total monthly income for your mortgage payment and 43% of total monthly income for total monthly debt payments. In some cases, however, it’s possible to get approved with debt to income ratio as high as 55%.
- Credit score—Borrowers with low credit scores can get approved for an FHA loan more easily than for other types of loans.
- Loan amount—In general, loan amounts must be modest as compared to home prices in your area.
Ready to Apply?
Our home mortgage experts can answer all of your questions about applying for an FHA loan in Orlando, Clearwater, or Miami.
You can also use our mortgage calculators to determine how much you might spend on a monthly payment.
Contact us today to find out how we can help you finance the home of your dreams, even if you have a small down payment or low credit score!