Below is an overview of FHA loans, how they work, and how the home loan program can help you buy your dream home in Columbia County, Florida.
What is an FHA Loan?
An FHA loan is a 15 or 30-year mortgage loan backed by the Federal Housing Administration (FHA) and provided by an FHA-approved private lender. This type of loan is tailored toward first-time homeowners. FHA loans have allowed lower-income Americans to access financing to buy homes they would otherwise not afford.
The FHA itself does not issue the loans. The approved lenders originate, underwrite, and finance the loan with the FHA insuring the loan in case of default. Due to the government backing, lenders can take more risks and relax their standards, providing lenient down payment and credit requirements, among other benefits.
Unlike a conventional mortgage, an FHA loan does not require you to make a sizeable down payment or have a high credit score. With a conventional mortgage, you must pay 20 percent of the home's purchase price. The low-down payment aspect of FHA loans makes this type appealing to many potential homebuyers.
You can use an FHA home loan to purchase single-family homes and multiplexes. This down payment is often one of the main obstacles to homeownership, especially for low to moderate-income individuals.
Depending on your credit score, you can put down as little as 3.5% of the home value with an FHA loan. Also, you can receive up to 6% of the property value to cater to closing costs.
Are you a Hometown Hero? Find out your eligibility for the Hometown Heroes Loan Program in Columbia County, Florida.
Types of FHA Loans
Aside from the typical home purchase loan, the FHA offers different types of loans to meet the diverse needs of homebuyers. Below are the various FHA loan types:
FHA streamline refinance - If you have an existing FHA loan, the FHA streamline refinance allows you to access a new loan with more beneficial terms. You also skip the home appraisal and income documentation.
FHA rate-and-term refinance – This allows you to refinance an FHA loan up to 97.75% of your home's value with low credit and includes the closing costs in the loan amount.
- FHA cash-out refinances allow you to borrow up to 80% of your home's equity through a cash-out refinance. The FHA does not restrict what you can do with the funds, although lenders may have specific expenditure guidelines.
FHA Loan Down Payment Requirements
Of all mortgage types that require a down payment, an FHA loan has the lowest down payment requirements, making it highly appealing to many homebuyers. The FHA implements different down payment requirements depending on your FICO credit score.
The minimum down payment required is 3.5 % of the home's purchase price or the appraised property value (whichever is lower) if you have a credit score of at least 580.
If you have a credit score between 500 and 579, the minimum down payment is 10% of the property value. For example, if you want to purchase a home in Columbia County worth $200,000, you can put down $7,000 at the lowest and 20,000 at the highest with an FHA loan.
With a conventional mortgage, you would have had to put down $40,000. FHA loan down payment must be paid upfront and cannot be included in the mortgage cost.
To secure an FHA loan, you must have a credit score of at least 500. However, if you have no or little credit history, an eligible Non-Occupying Co-Borrower can co-sign the loan. This person does not have to be a blood relative or reside on the property with you. However, they must not have an ownership interest in the said property.
Sources of Down Payment
The FHA regulates mortgage down payments in some ways. Aside from the minimum amount of investment required, the source of the down payment is also regulated. Depending on your circumstances, the FHA required that you document the origin and nature of the down payment funds.
One of the FHA rules regarding a down payment is a list of sources the agency deems acceptable. These sources include:
- Cash from checking accounts and savings
- 401K accounts
- Savings bonds
- Money from property sale
- Gift funds
It's important to note that you cannot use mattress funds or money you have put away in your home for down payment or closing costs. Mattress funds can hurt your chances of getting an FHA loan and are highly discouraged in the mortgage industry. Asset verification is an essential aspect of mortgage approval.
Mattress money does not have a paper trail. A lender cannot determine the source of the funds or when you saved them. Also, they cannot use mattress money to analyze your long-term saving habits and assess your ability to repay the FHA loan.
If you have mattress money stashed somewhere and want to purchase a home, deposit the money in a checking or savings account first. Then you let the funds sit in the account or "season" for up to 60 days(two months) to provide a paper trail and prove that the money is yours.
In the case of gift funds, the FHA only allows gifts from several sources to be used for the down payment. These sources include your relative, your employer or labor union, a close friend with a documented and defined interest, a charitable organization, and a public entity or government agency with a homeownership assistance program.
Various state and local governments run down payment assistance programs using mortgage revenue bond funds.
Down Payment Assistance Programs
If savings for the 3.5% FHA down payment is proving difficult, you can still achieve your homeownership dream in Columbia County through the Florida Housing down-payment assistance program.
Florida Housing runs the Bond Loan Program, which provides down payment and closing costs assistance if you are an eligible home buyer in Columbia County.
The down payment assistance takes the form of a zero-interest deferred second mortgage for FHA loans. With this non-amortizing loan, you can access grants of up to $10,000 as of June 1, 2021.
The program is only available with Florida Housing's first mortgage loan and is not forgivable. The total amount is payable if you sell your home or refinance the FHA mortgage.
Income and Purchase Price Limits
As of 2021, the Florida Housing income and purchase price limits for down payment assistance in Columbia County, Florida include:
- Non-Target (1-2 person) – $70,560
- Non-Targeted (3+ persons) – $82,320
- Targeted – $84,000
- Non-Targeted Purchase Price Limit – $311,980
- Targeted Purchase Price Limit - $381,308
FHA Loan Debt-to-Income Ratio Requirements
Debt-to-income (DTI) ratio is a metric that compares the amount you owe to the amount you earn each month. Specifically, DTI is the percentage of your pre-tax monthly income that goes towards paying off credit cards, rent, mortgages, student loans, and other debts. Lenders assess your DTI to determine where you can pay off the FHA loan.
The DTI requirements may vary depending on the private lender and your credit score. For FHA loans, you must have a back-end DTI of 43% and a front-end DTI of 31% or less.
Back-end DTI considers all monthly debt obligations, while front-end DTI considers only monthly mortgage obligations.
FHA Loan Property Requirements
Not every home in Columbia County qualified for the FHA loan program. Below are the various requirements that a property must meet to secure financing through an FHA loan:
The property must be your primary residence, not investment property (no rentals or vacation homes). At least one borrower must reside in the home within 60 days of closing.
You cannot purchase the home within 90 days of a prior sale. House flipping is prohibited.
The property title should be in your name or that of a living trust at the settlement stage.
- The property has to undergo FHA-approved appraisals, including HUD-approved inspections, to determine its market value and if the residence is adequate, safe, structurally sound, and sanitary.
FHA Loan Mortgage Insurance
Since private lenders take on more risk with the low down payment FHA loans, mortgage insurance is necessary. Irrespective of the loan amount, credit score, and down payment, all FHA loans require a mortgage insurance premium (MIP). The FHA employs a two-tiered MIP schedule that includes:
FHA Loan Documentation
FHA loan approval depends on the documents that you provide during applications. You must provide accurate information concerning your employment, income, savings, debts, investments, and other financial attributes that the lender deems necessary. Generally, you will be required to provide the following documents:
W-2 and 1099 statements for the past 24 months
Income tax returns for the past 24 months
Bank statements for savings accounts, 401K, retirement, stocks, and mutual funds
Social security documents
Drivers license or Photo ID
Proof of permanent address and residency
- Note and deed from existing mortgage, property tax bill, and homeowner's insurance if you are refinancing
Columbia County FHA Income and Loan Limits
With an FHA loan, there are no minimum or maximum income requirements. Every year, the FHA sets loan limits for mortgages. The 2022 FHA loan limits for Columbia County are as follows:
- Single family residence (one unit) - $420,680
- Duplex (two units) - $538,650
- Triplex (three units) - $651, 050
- Fourplex (four units) - $809,150
FHA Loan Application Process
The FHA loan application process consists of the steps detailed below:
Confirm you meet the requirements for an FHA loan – To qualify, you must meet the down payment, credit, and DTI requirements described earlier.
Select an FHA-approved lender – Many banks and mortgage firms offer FHA loans. It's advisable to look for a lender that specializes or has experience in FHA loans.
Apply and get pre-approval for an FHA-Loan – It's advisable to apply for an FHA loan pre-approval before searching for property in Columbia County. Most lenders allow for applications online or through a loan officer. Your lender will review your income and financial situation to determine the loan amount you can afford. You will be required to provide the documents mentioned above. You can present a pre-approval letter to sellers when making an offer on a home.
FHA property appraisal and inspection – After FHA loan pre-approval, the next step is property appraisal and inspection. An FHA-approved appraiser will estimate the property's current market value and perform a property inspection to determine if its meets HUD's health and safety standards.
FHA underwriting and final approval - Underwriting is the next step after approval. An underwriter analyzes your documentation, income, and credit score to determine that your FHA loan is sound. The underwriter may request additional documentation and information to satisfy that you meet FHA and lender guidelines before the final approval.
- Closing – You sign the loan documents and pay the fees and closing costs to finalize the mortgage before moving into your new home.
Things to do/Attractions in Columbia County, Florida
If you secure an FHA loan to purchase your dream home in Columbia County, Florida, there is a wide variety of fun and engaging things to do and attractions for kids and adults alike.
Lake City Columbia County Historical Museum
Lake City Columbia County Historical Museum is a two-story museum situated in downtown Lake City and is the official museum of Columbia County. Being one of the most popular attractions in Lake City, the museum highlights and celebrates the history of Columbia County and surrounding areas, especially during the 18th century.
This is an excellent spot for kids to catch up on the region's history. The museum features various artifacts and exhibits and provides guided tours. Each room in the museum features a different historical era, where you can browse an extensive collection of heirlooms and relics.
Also, the museum organizes the annual Battle of Olustee Festival every February, among other events. The festival features a reenactment, a memorial service of the battle, and other activities like live music and exhibits.
Alligator Lake Park
Alligator Lake Park has long been a popular gathering spot for Columbia County locals and visitors. The park was restored from agricultural land to wetlands, with its primary appeal being the extensive network of scenic hiking trails.
Among the top spots in the park is the Alligator Lake Recreation Area. You can have family fun at the recreation area as it features a picnic area, pavilions, and a playground, alongside many scenic trails of various lengths. There is no shortage of activities to enjoy here, and the kids will love it.
You can take a stroll, go for a jog, hop on your bike, or relax and enjoy the fresh air in the picnic areas. You can also launch a kayak or canoe into the extensive hiking trails' wetlands and have a close-up view of flora and fauna.
With the Gulf of Mexico to the west and the Atlantic Ocean to the east, the stunning freshwater springs in Columbia County are among Florida's hidden secrets. The pictures hardly do these springs justice. The sparkling clear blue waters flowing over colorful aquatic flora add to the allure.
You and your family can enjoy Columbia County's springs in many ways. You can swim, paddle, kayak, canoe, or fish in the waters at Rum Islands Springs. If you are adventurous, the diving platform at Gilchrist Blue Springs is a must-try.
The kids can splash in the clear turquoise waters of Poe Springs and view the underwater life by snorkeling at Ginnie Springs. You can also hit the waves with the tubing adventures available at Ichetucknee Springs.
Hispanic Dining in Columbia County
Florida has one of the largest Hispanic populations in the country, and Latin flavors are ingrained in the state's culinary landscape. As expected, Columbia County also has a significant Hispanic population, affording residents and visitors a touch of Hispanic culture and mouth-watering Latin cuisine. One of the best places to sample Latin cuisine in Columbia County is Pampy's Latin Food.
Located in the county seat, Pampy's Latin Food is a highly rated joint by diners in the region. Pampy's specializes in Cuban cuisine with a menu including Cuban dishes like Ropa Vieja, Pollo Asado, and Fricasse de Pollo alongside Cuban sandwiches and desserts. The restaurant serves a wide variety of homemade Latin American food.
Other great Hispanic restaurants you can try out in Columbia County include Salsas of Lake City, Moe's Southwest Grill, Costa del Sol, and El Potro Mexican Restaurant.
Osceola National Forest
Osceola National Forest spans over 200 acres of pristine grounds in Florida's north central region. It is one of the main attractions in Lake City, the county seat of Columbia County. Osceola National Forest offers plenty of outdoor activities for everybody.
Families can enjoy picnicking, hiking, biking, camping, and boating at Ocean Pond, while enthusiasts can engage in fishing, water skiing, and fishing. The national forest features pine forests, prairies, lakes, rivers, and swamps.
You can enjoy all these natural wonders through a network of equestrian trails, including the Florida National Scenic Trail and the rugged paths that connect them.
Overall, if you have limited savings or less than stellar credit, an FHA home loan can enable you to become a homeowner in Columbia County, Florida. Many people opt for FHA loans since they are easier to qualify for, have low down payment requirements, and allow for lower credit scores.
For more than 80 years, the FHA loan program has helped millions of low to moderate-income Americans purchase their dream homes.