Guidelines on home loans change every year. Knowing how FHA loans work is the first step toward getting the home of your dreams.
FHA isn't always the best option, but it is perfect for first time home buyers who may have credit blemishes or don't have a 20% down payment to make on the house.
Each lender or mortgage broker has different credit requirements. Some may have a minimum credit requirement of 680, while others will go as low as 620. It will be tough to find a lender who will go down to a 580; they are out there.
We use to help borrowers with scores in the 580 range, but due to COVID-19, we've increased our minimum credit requirement to 620.
FHA loan program will allow financing down to a 500 credit score, which is not common!
For borrowers with scores between 500-579 down payment requirement is 10%, and scores with 580 and up are only required to make a 3.5% down payment.
Some loan programs have a cap on how much income you can make. With FHA, there is no cap. You can make six figures a year and still qualify.
Each county has a different limitation and they change every year. The below example is for 2021.
San Diego's FHA loan limit is $753,250. Los Angeles is $822,375.
For the state of Florida, Baker County has a limit of $388,700, Gadsen county has a limit of $356,362.
As you can see, each county and state is different. Talk to a loan officer to determine what your county limit is.
FHA loans and first time home buyer goes hand in hand. BUT you don't need to be a first-time buyer to use the FHA program.
FHA allows financing for all kinds of properties. Mobile homes, manufactured homes, condos, townhomes, and even multi-unit properties like a duplex or 4plex.
FHA is only for primary residences, but you can live in one unit and rent out the others if you purchase a multi-unit.
This is called an FHA construction loan. The minimum credit score requirement will increase with this loan type, and not all lenders or mortgage brokers offer this program. It also takes a long time to build a home and is not usually recommended when purchasing a home for the first time. It's a stressful process.
Yes, you can buy a property that needs a lot of repairs and get the cost of repairs financed into the loan. It's called an FHA 203K.
Keep in mind that the FHA program is only for primary residences. You can't buy a home with the intention of flipping it to someone else once repairs are done.
More info: FHA 90 day flip rule
FHA requires mortgage insurance to be paid. Whether you are making a 20% down payment or a 3.5% down payment, it's required. The only way you can get rid of it is by refinancing out of the loan.
When interest rates go down, you can refinance without having to pay for an appraisal or providing any income docs; as long as it's a rate and term refinance (lowering monthly payment)
If you want to take some money out to pay for bills or home improvements, an appraisal and income verification is required.
Read more: FHA refinance info
FHA requires the monthly mortgage payment to include property taxes and homeowners insurance. When the bill is due each year, the lender will pay for it, so you don't have to worry!
When property taxes are due, it can be quite a large bill. For example, in San Diego, property taxes are estimated at 1.25% a year. If you purchase a home for $600,000, that is $7500 that you would have to come up with every year!
It's much more manageable when paid every month. You don't want the county repossessing your home because of unpaid taxes.
Rates are typically lower on an FHA loan than a Conventional loan because it is a government loan program, and the government offers incentives to lenders for making the program available to their clients.
BONUS - We added one more FHA fact
Having a bankruptcy on your credit record isn't doomsday. You can get a home loan after a bankruptcy. You must have reestablished credit after the bankruptcy (no late payments, collections, repossessions). Chapter 7 requires a waiting period of 2 years from the discharge date and Chapter 13 requires 12 months of on time trustee payments to be made to qualify.