Buying a home is a miracle to some. I get it, it’s a sh*t tone of money! Especially for someone my age (25) who hasn’t worked enough to save thousands of dollars in a 401k or something. So, what do you do in this kind of situation when you can’t use a standard Conventional loan that requires 20% down? You get help from our government!
FHA Loans are a great way to get a foot through the door in becoming a homeowner. So, if you’d like to get Pre-approved so you can shop for your new home, call a loan specialist or contact me, I can help connect you to the right people and get a pre-approval in a little as 24 hours.
WAIT, BACK UP, WHAT IS AN FHA LOAN?
It’s a loan that the Federal Housing Administration ‘insures’. They require smaller down payments as little as 3.5%, lower closing cost, and easier lending standards to help you qualify.
This helps lower income & middle-income borrowers purchase a home when you may not qualify for a conventional loan—which has stricter credit requirements, including a higher credit score, higher down payment (20%) and strong credit history.
This program provides insurance to the bank or lender of your home, promising them financially in case the borrow aka you does not pay the mortgage.
THE LIMIT DOES NOT EXIST
FHA loan limits vary based on location and the property type (single-family home/ 2-unit/ 3-unit/) and are calculated individually for each state and county within that state. Click here to find the FHA mortgage limit for your area.
Santa Clara County
Single Family home $636,150
WHAT DO I NEED TO GET PRE-APPROVED FOR AN FHA LOAN?
- 5 percent of the purchase price for down-payment
- Have a valid U.S. Social Security number.
- Proof of U.S. citizenship, evidence of legal permanent residency or eligibility documentation to work in the U.S.
- Valid age to sign mortgage loan documentation under your state’s laws.
- Purchase a one- to four-unit (Maximum) property.
WHAT’S THIS EXTRA COST ON MY MORTGAGE AND WHY?
The one and only Mortgage insurance, it’s required when you pay less than 20 percent. It ensures the mortgage for the lender in case you decide to say f**k it and walk away.
All FHA loans require you to pay two mortgage insurance premiums:
Upfront premium: 75 percent of the loan amount, paid when you get the loan. The premium can be rolled into the financed loan amount.
Annual premium: 45 percent to 1.05 percent, depending on the loan term (15 years vs. 30 years), the loan amount and the initial loan-to-value ratio, or LTV. This premium amount is divided by 12 and paid monthly.
So, if you borrow $150,000, your upfront mortgage insurance premium would be $2,625 and your annual premium would range from $675 ($56.25 per month) to $1,575 ($131.25 per month).
The duration of your annual MIP will depend on the amortization term and LTV ratio on your loan origination date.
For loans with FHA case numbers assigned on or after June 3, 2013:
Borrowers will have to pay mortgage insurance for the entire loan term if the LTV is greater than 90% at the time the loan was originated. If your LTV was 90% or less, the borrower will pay mortgage insurance for the mortgage term or 11 years, whichever occurs first.
More detailed version of what you’ll need to fully qualify for an FHA Loan
- Borrowers must have a steady employment history or work for the same employer for the past two years.
- Borrowers must have a valid Social Security number, lawful residency in the U.S. and be of legal age to sign a mortgage in your state.
- Borrowers must pay a minimum down payment of 3.5 percent. The money can be gifted by a family member.
- New FHA loans are only available for primary residence occupancy.
- Borrowers must have a property appraisal from an FHA-approved appraiser.
- Borrowers’ front-end ratio (mortgage payment plus HOA fees, property taxes, mortgage insurance, homeowners insurance) needs to be less than 31 percent of their gross income, typically. You may be able to get approved with as high a percentage as 40 percent. Your lender will be required to provide justification as to why they believe the mortgage presents an acceptable risk. The lender must include any compensating factors used for loan approval.
- Borrowers’ back-end ratio (mortgage plus all your monthly debt, i.e., credit card payment, car payment, student loans, etc.) needs to be less than 43 percent of their gross income, typically. You may be able to get approved with as high a percentage as 50 percent. Your lender will be required to provide justification as to why they believe the mortgage presents an acceptable risk. The lender must include any compensating factors used for loan approval.
- Borrowers must have a minimum credit score of 580 for maximum financing with a minimum down payment of 3.5 percent.
- Borrowers must have a minimum credit score of 500-579 for maximum LTV of 90 percent with a minimum down payment of 10 percent. FHA-qualified lenders will use a case-by-case basis to determine an applicants’ credit worthiness.
- Typically, borrowers must be two years out of bankruptcy and have re-established good credit. Exceptions can be made if you are out of bankruptcy for more than one year if there were extenuating circumstances beyond your control that caused the bankruptcy and you’ve managed your money in a responsible manner.
- Typically, borrowers must be three years out of foreclosure and have re-established good credit. Exceptions can be made if there were extenuating circumstances and you’ve improved your credit. If you were unable to sell your home because you had to move to a new area, this does not qualify as an exception to the three-year foreclosure guideline.
- The property must meet certain minimum standards at appraisal. If the home you are purchasing does not meet these standards and a seller will not agree to the required repairs, your only option is to pay for the required repairs at closing (to be held in escrow until the repairs are complete).
Want more information? Or want to see if you qualify? Cool, just email me!