FHA Purchase Home Loans | How to Buy a Home with FHA Purchase Loans
FHA Purchase Home Loans
The Federal Housing Administration was created in 1934 to reduce the underwriting guidelines and loan approval requirements for home buyers. These FHA Mortgage Home Loan Programs offer relaxed underwriting requirements, thus promoting affordable access to homeownership in America.
FHA Purchase loans and refinance loan programs are designed to promote affordable homeownership for individuals and families that may not qualify for conventional loan programs.
FHA issues borrower paid mortgage insurance policies to the mortgage lender that provides the loan.
This insurance policy protects the mortgage lender from potential financial losses on the loan in the event of a loan default.
In this article, we will provide you with all the information you need to make an educated decision in selecting the best home loan program for you.
What is an FHA Purchase Loan?
FHA Purchase Loans are loan programs designed to help more homebuyers qualify to purchase homes.
In accordance to FHA’s underwriting guidelines that are used to determine loan approvals, homebuyers can qualify to purchase a home with lower credit scores, lower waiting periods on bankruptcies, and lower down payment requirements compared to conventional mortgage loans.
Benefits of an FHA Purchase Loan
There are many benefits to using FHA to purchase a home. Most of these benefits are related to the ease of loan approval under the FHA requirements to get a loan.
These loan programs offer affordable financing for homebuyers with lower credit ratings and or down payments.
Here is a list of benefits for FHA loan programs.
Lower FHA Down Payment Requirements:
Under FHA you can qualify to purchase a home with lower down payment requirements compared to conventional loan programs.
Below is a list of FHA down payment requirements based determined by the borrowers credit score.
- 3.5% down payment required for credit scores greater than or equal to 580.
- 10% down payment required for credit scores greater than 550 and less than 580
Lower FHA Credit Score Requirements:
Unlike Conventional loans that require a minimum credit score of 620, the FHA Purchase Loan will approve credit scores equal to or greater than 550.
- FHA allows credit scores down to 550
Reduced FHA Bankruptcy Waiting Period:
- Chapter 7 bankruptcy allowed when discharged over 2 years from date of application
- Active Chapter 13 bankruptcy allowed if 12 months of payments made on time
FHA Debt-to-Income Ratio:
Debt-to-income (DTI) ratio is the percentage of your monthly income that goes towards paying your debts.
Borrowers can calculate their debt-to-income ratio by dividing their total credit issued monthly payments divided by their gross monthly income.
To qualify for an FHA loan, your DTI ratio should be no higher than 43%. However, FHA will allow for higher debt-to-income rations up to 50%.
Competitive Interest Rates and Loan Terms:
Because FHA provides a mortgage insurance policy to the mortgage lender, the mortgage lenders risk of loss is decreased.
Therefore, FHA mortgage lenders can offer competitively priced mortgage loans with reasonable interest rates and lending terms. Below is a list of available interest rate types allowed by FHA.
- Fixed Rates: This means your monthly payment will never change
- Adjustable Rates: This means your monthly payment can increase or decrease depending upon market conditions
- Terms: 30, 25, 20, 15, 10-year terms
FHA Assumable Loans:
FHA mortgage loans are transferable. This means that if a an FHA mortgagor sells the home, a new buyer may assume the current FHA mortgage loan.
If the existing FHA mortgage note rate is lower than current market rates, than this creates an added value that should be accounted for in the sales price of the home.
Homeowners who purchased or refinanced in 2020 through 2022 using an FHA mortgage loan that received interest rates between 2-3% have a marketing advantage when selling their home in a higher interest rate market place.
Ease of Refinancing under FHA Streamline:
Under FHA Streamline Refinance guidelines, if interest rates and or mortgage insurance premium decrease by .50% or more then borrowers with an active FHA loan can refinance to a lower monthly payment without having to submit income documents or obtain a real estate appraisal.
FHA Purchase Loan Mortgage Insurance Premium (MIP):
To cover the cost and higher risk associated with the lenient underwriting guidelines of FHA, borrowers are required to pay the following FHA mortgage insurance fees into the Federal Housing Administration.
FHA Upfront Funding Fee:
This fee can be financed into the loan and is equal to 1.75% of the loan amount.
FHA Monthly Mortgage Insurance Premium:
FHA monthly mortgage insurance (MIP) is an annual fee that will be included into your monthly payment. The amount of this annual fee is based upon the term of the loan, size of the loan amount, and amount of down payment or equity in the home, also known as loan to value.
FHA Purchase Loan Limit:
The Federal Housing Administration determines the maximum FHA county loan amount based upon the county the property is in and the number of units in the home.
Based upon the average cost of a single-family home in each county, some counties are designated as a high-cost county and allow for higher loan limits per FHA guidelines.
|
FHA Limits (low-cost areas) |
|||
|
Single |
Duplex |
Tri-plex |
4-plex |
|
$472,030 |
$604,400 |
$730,525 |
$907,900 |
|
FHA Limits (High-Cost areas) |
|||
|
Single |
Duplex |
Tri-plex |
4-plex |
|
$1,089,300 |
$1,394,775 |
$1,685,850 |
$2,095,200 |
How to get an FHA Purchase Loan
If you're interested in an FHA Purchase Loan, here are the steps you'll need to take:
- Verify Eligibility: Use a 3 minute online mortgage pre-qualification app that will verify you meet FHA guidelines.
- Select the Lowest Rate and Fee Lender: The 3 minute online mortgage pre-qualification app, borrowers will be presented with multiple real loan offers. Select the lowest annual percentage rate loan that is listed at the top.
- Upload Income Documents: After selecting the lowest rate FHA mortgage loan, borrowers can upload the documents requested in the mortgage app. A list of documents is provided in the mortgage app for each online user.
- Underwriting: Almost every loan submitted to underwriting has additional conditions. In most cases these conditions are simple and easy to resolve.
- Closing: Upon clearing all underwriting conditions the loan request will be classified as “clear to close.” This means that buyers, sellers, and escrow agency will coordinate a date of closing to complete the purchase transaction and disburse funds.
FHA Purchase Loan Conclusion
An FHA Purchase Loan can be a great option if you're a first-time homebuyer or if you're struggling to qualify for a conventional loan.
With a lower down payment and lower credit score requirements, an FHA loan can make it easier for you to purchase a home.
If you're interested in an FHA loan, be sure to do your research. Using our mortgage app, EquiFund will match you with the right loan and lender.
with the help of the Federal Housing Administration.
The Federal Housing Administration makes the dream of homeownership is easier for those that would not normally qualify for conventional mortgage loans.
