FHA Home Mortgage LoanThe Federal Housing Administration loan program allows you to buy with as little as 3.5% down.
Buying in Florida with the FHA Mortgage Program
The government started the FHA mortgage program and the Federal Housing Administration with the intention of making home ownership a possibility for more Americans across the board. With FHA financing you get the opportunity to buy a home with a as little as 3.5% down. The best part is you don’t need a stellar credit score.. However borrowers with great credit still utilize the program to for the low down payment, ability for the seller to contribute up to 6% of the sales price towards the borrowers closing costs, and the higher debt ratio limits. Generally there is a 3 year seasoning requirement for bankruptcies, foreclosures, and short sales which is more lenient than conventional financing. FHA financing also provides flexible terms, 15 and 30 year fixed rate mortgages are available as well as 7/1 and 5/1 arms or adjustable rate mortgages. You can also utilize FHA financing for the purchase of a manufactured home or what people still call mobile homes. The requirements for FHA financing are less restrictive than conventional financing. The FHA loan loan amount limits are more conservative than conventional loan limits, for most counties like Alachua, Marion, Citrus county and others in Florida its about $472,030 for a single family home. Counties like Broward has a limit of $557.750 Its also possible to use FHA financing to build a home.
FHA Credit Score Minimum
Our minimum credit score requirement is a 580 middle FICO score for FHA mortgage financing. Your middle score is the middle number between Experian, Equifax, and Transunion, not an average. This provides us the maximum flexibility to help borrowers across the credit spectrum. With a lower credit score its possible we will need other compensating factors for your loan approval. Compensating factors can include reserve assets, good job history, and rent history with little or no payment shock compared to your new proposed mortgage. Its possible your score is just stuck lower, but if you haven’t had any late payments in the last 12 months your likelihood of getting approved is much higher.
There is mortgage insurance required by the government for a Florida FHA mortgage. They have an upfront funding fee of 1.75% which is financed into your mortgage which is called the guarantee fee. This is not an out of pocket expense but rather built into your loan. There is also a monthly mortgage insurance factor of .55% with a down payment of 3.5%, with a 5% down payment it drops to .50%. On a $200,000 FHA loan the monthly mortgage insurance payment would be $91.66. The mortgage insurance is based off the principal owed, so as the principal owed drops so does the mortgage insurance amount. The fact that mortgage insurance is for the life of the loan is the biggest deterrent to some folks, but keep in mind you can always refinance into a conventional loan if your home appreciates and eliminate mortgage insurance.
Closing Costs With FHA
Your closing costs are same as any other loan apart from the up front funding fee that’s financed into your loan. An advantage to FHA financing over conventional financing is that the seller can contribute up to 6% of the sales price towards your closing costs even with a 3.5% down payment. With a conventional mortgage at 3% down you can only get up to 3% seller concession for your closing costs.
FHA Debt Ratio Requirements
FHA financing can allow for your debt ratios to go as high as a 56% back end ratio. That means that your total debt including your new mortgage can be as high as 56% of your gross income if you are a w-2 employee. If you have student loans in forbearance with no payment FHA requires that we add a .5% payment of the total amount owed as a debt to include in your ratios. If your credit score is lower your maximum debt ratio could be lower.
FHA Property Condition Requirements
Its often the conception that FHA loans are harder to acquire because FHA appraisers are more particular about the condition of properties. This conception is often held by sellers who are concerned about their property having issues that might hold up the purchase of their home. I have found that 90% of the time their concerns are unfounded. If a home is in working order FHA financing is a great option. The issues an appraiser might take note of are really common sense issues. If they see water damage that can be an issue. If there are electrical outlets without faceplates that can be an issue as a matter of safety. Unless is visible notable damage like large holes in walls, or ripped up flooring then I would not be concerned with the condition of a property using FHA finanicng.
Important Guidelines to Note for FHA Financing
- In order to eliminate joint debt from your ratios a loan must be joint and the co-borrower must show 12 months of history making the payment our their personal account.
- If you are receiving child support or alimony, it must be court ordered and you must show 12 months of receipt of the payment via check or money order. Cash can not be sourced. We must be able to show that you will receive the payments for at least 3 years.
- If you are paying child support or alimony we must include that payment in your debt ratios.
- A 2 year job history is important to document, if you were in school prior to your work in a field that relates to your education then schooling can be included as job history. You can actually get financing as soon as your graduate at your new job.
- If you are changing jobs we can use an offer letter to secure financing. The offer letter must have a start date and outline your income. You must close within 90 days of your start date.