FHA loans are mortgages that are backed by the Federal Housing Administration. Although this backing means that mortgage insurance is required on FHA loans, because lenders are protected they are able to offer lower interest rates and less strict requirements to qualify. Many first-time home buyers find FHA loans attractive for these reasons, although you don’t have to be a first-time home buyer to qualify.
In order to qualify for an FHA mortgage loan, you will need a credit score of at least 580 and a minimum of 3.5% cash down. Additionally, you will need a stable employment history and a debt-to-income ratio of 50% or less. Our friendly loan officers can help you figure out if this will be a good fit for your situation, give us a call and we can talk you through your options.
It is important to keep in mind that you will also need to cover closing costs and the upfront mortgage insurance premium. One benefit of FHA loans, however, is that closing costs can often be rolled into your loan.
Some additional requirements include: the home must have an FHA-approved appraisal, the home must be your primary residence, you must occupy the home within 60 days of closing, and an inspection must be performed.
Oftentimes, FHA loans offer lower interest rates to buyers than other types of loans. This is because the government backing on the loan lowers the risk for lenders and allows them to in turn offer lower rates. Remember that your rate also depends on your credit score, income, down payment, loan amount, and debt-to-income.
Because FHA loans are backed by the government, lenders are protected from defaulted loans by buyers paying a mortgage insurance premium.
Most of the time, FHA loans require mortgage insurance to be paid for the entire life of the loan. You must also pay an upfront premium at closing, which usually amounts to 1.75% of the base loan amount. Additionally, you pay annual mortgage insurance based on the term of your loan, the loan amount, and your down payment amount. Annual mortgage insurance premiums are about 0.45% to 1.05% of the base loan amount. Don’t worry, we are happy to explain and talk you through all the details. We aim to be upfront and transparent, but we don’t want this to feel overwhelming. Give us a call anytime!
The Department of Housing and Urban Development has set maximum limits to how much you can borrow for an FHA loan. The maximum amount of “high-cost areas” as well as Hawaii and Alaska in 2021 is $822,375. Loan limits are based on property values by county, and can be as low as $356,362 in “low-cost areas”.
For more information and specific figures on FHA mortgage limits in your area, visit the Department of Housing and Urban Development website.
FHA mortgage loans are ideal for many home buyers who want to take advantage of low rates and flexible financing options. If you meet credit requirements and have at least 3.5% cash for a down payment, you may benefit from this loan option. Our helpful team of loan officers at Integrity First Lending can help you decide if an FHA loan is the best fit for you with an in person phone call and consultation.
Equal Housing Lender. Integrity First Lending.
NMLS # 1006977
AZ License # 1004274