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FHA Loan in Orange County, Florida: Learn About the Low Down Payment Options

As a top destination for millions of tourists and travelers, not to mention home to over 1.42 million people, Orange County floods with recreation, arts, excitement, sports, culture, and economic opportunities. And suppose we're being a little more specific, the county boasts epic theme parks, a world-class international airport, and countless entertainment options.

But besides all that, home ownership in Orange County is a feasible option. How? It's simple! You only need to take advantage of the low-down FHA loan.

What is an FHA Loan?

FHA loans are simply mortgages backed by the government through the Federal Housing Administration. In simple terms, they are loans insured by the FHA, meaning that participating lenders are protected from the loss that could be incurred from a borrower defaulting on their loan.

Good news? FHA loans have reduced minimum credit score limits and, more importantly, come with a low down payment option. For these reasons, they are a steal for first-time home buyers. But don't get this wrong – FHA mortgages are available to anyone, not only first-time home buyers.

Types of FHA Home Loans

The FHA offers several types of mortgages; whichever you pick will determine how you can spend the funds and limits the property type you can get. As such, you might want to take your time and figure out the right kind of loan for you.

On that note, here are the various FHA loan categories.

  • Traditional Mortgage - The FHA Traditional mortgage is perhaps what comes to mind when you hear of FHA loans. It's the loan option offered by the FHA to borrowers looking to purchase their primary residence, be it a single- or multi-unit home, and comes with an option to choose between an adjustable or fixed rate.

  • Construction to Permanent Loan - As the name suggests, this loan best suits applicants who wish to acquire land and construct a home from scratch.

  • Energy Efficient Mortgage - You can leverage an EEM to finance energy-efficient renovations or repairs, all at the cost of a low down payment. Examples of things you can enhance using this loan include your thermostat system, insulation, or furnace. However, the enhancements must be cost-effective, and you can only qualify if your home is assessed professionally.

  • Home Equity Conversion Mortgage - This loan option is ideal for older homeowners looking for a way to convert some of their home equity into cash.

  • 203(k) Rehab Mortgage - With a 203(k) Rehab Mortgage, you qualify for a home loan and additional funds to cover the cost of home enhancements.

  • Title 1 Property Improvement Loan - You can take advantage of the Title 1 Property Improvement Loan to supplement the 203(k) mortgage or cover the expense of your home improvements.

FHA Loan Requirements

When looking to get any mortgage, there are several eligibility requirements to be evaluated by the lender. Well, an FHA loan is no exception. However, it's vital to understand that the requirements discussed below are nothing but the FHA's minimum and that lenders tend to have additional, varying terms.

Quick tip? Shop several participating lenders and compare offers to ensure you get the most favorable FHA loan terms and interest rates.

Read on as we explore the minimum FHA loan requirements.

Down Payments and Credit Scores

One of the FHA loans' selling points is that they are available to borrowers with poor credit scores – as low as 500, which for a FICO score is deemed "very bad."

Generally, a credit score of between 500 and 579 gives you a good chance of qualifying for an FHA mortgage. But that's not everything, as you'll need a 10% down payment for that to be possible. However, the amount of down payment isn't the same across the board – applicants with a credit score of 580 or higher require as low as 3.5% down to qualify for an FHA loan.

But as earlier mentioned, these guidelines are set by FHA, and distinct participating lenders can choose to demand a higher credit score. Most lenders did raise their minimum credit score requirements due to the joint impacts of COVID-19 and the economic downturn – many lenders now require a score of not less than 620.

Best part? You can leverage gift assistance to gather funds for your down payment rather than use your savings. However, you'll need to ensure the relevant documents clarify that the assistance you received is a true gift, not camouflaged debt. The deal can get even better for Florida residents, who can access down payment assistance of up to $10,000 offered by the Florida Housing Finance Corporation.

Debt-to-Income Ratio

Generally, you need a debt-to-income ratio of not more than 50 to be eligible for an FHA loan. This means that your monthly debt payments – including debts you've put on hold – should not exceed 50% of your gross income.

Suppose you have student loans, particularly those you aren't actively paying; the FHA loan underwriter will use 1% of the total as your monthly payment. For other loan types in deferment, your underwriter will include 5% of their total when determining your DTI.

Property Approval

The home you intend to acquire with your FHA loan, be it a multi-unit home, a manufactured home, a condo, or simply a house, must meet the minimum property requirements set by the FHA.

According to the FHA, a professional appraisal is mandatory. However, it's essential to understand that the assessment has to be conducted differently and separately from a home inspection.

These requirements are only there to ensure that the property you acquire is an excellent investment and that it satisfies basic livability and safety standards.

For a 203(k) rehab mortgage, you're required to undertake two separate appraisals – one for the property's current state, known as an "as is" appraisal, and another to estimate its value after renovations, which we refer to as an "after improved" appraisal.

Mortgage Insurance

For all FHA loans, a mortgage insurance premium is required to cushion the lender against loss in the unfortunate event an applicant defaults on their mortgage.

Often, you'll be required to pay the mortgage insurance premium throughout your FHA loan's term. But the case is different for borrowers who make a 10% or more down payment as they'll only pay the mortgage insurance premium for 11 years.

FHA mortgage insurance premiums are assessed in two different ways:

  • An upfront mortgage insurance premium, which comprises 1.75% of your loan amount, is payable when you qualify for the mortgage. Luckily, it's possible to roll this premium into your total loan amount.

  • An annual mortgage insurance premium is often between 0.45% and 1.05%, depending on your initial loan-to-value ratio (LTV), loan size, and loan term.

Evidence of Steady Employment

Remember, FHA loans have to be repaid, and your lender will need guarantees that you can pull this off. One way to get these assurances is by asking for proof of steady, recent employment. This can entail your tax returns, profit and loss statement, and balance sheet.

You may still be eligible if you've been self-employed for over a year but not more than two years. Nonetheless, your work and income history before becoming self-employed must be solid to stand a chance of qualifying.

Adequate Income

Your homeowner's insurance, property taxes, HOA fees, mortgage insurance, and mortgage payments should not exceed 31% of your pretax income. This is what banks like to refer to as the front-end ratio. Simultaneously, all your monthly consumer debts and mortgage payment shouldn't be more than 43% of your pretax income.

FHA Occupancy Requirements

It's a requirement by the FHA for the borrower to occupy the acquired property within 60 days of closing. You'll also be required to use the home as your primary residence, which according to the FHA, is one you reside in for most of the year.

Violating or disregarding these occupancy requirements can be fraudulent and attract a criminal or civil lawsuit against the applicant. Generally, borrowers can't have several active FHA loans at once. So, suppose you intend to acquire another residence or move out early, it would be best to consult your lender about other options.

FHA Loan Limits in Orange County, Florida

FHA loan limits vary across Florida, depending on the local housing costs and different housing types. For Orange County specifically, the FHA loan limits are as follows:

  • Single unit - $420,680
  • Two units - $538,650
  • Three units - $651,050
  • Four units - $809,150

Benefits of FHA Loans

FHA loans have proven the best option for borrowers who could find it challenging to qualify for a mortgage through private lenders, perhaps due to high down payment requirements or tight credit scores. That said, here are a few upsides of FHA loans.

Lenient Credit Score Requirements

If you've previously encountered setbacks regarding making on-time payments or are yet to establish a solid credit history, attaining the 620-credit score –the specific number to qualify for a conventional mortgage – might prove impossible.

Fortunately, FHA loans are slightly more lenient regarding credit score requirements. As a result, borrowers with poor credit scores, even as low as 500, may qualify. However, you stand a better chance with most FHA-approved lenders if your score is 580 or better.

Low Down Payment

With FHA loans, you have the option to make a much lower down payment than you would with a conventional mortgage. As seen earlier, a credit score of 580 or more could see you paying as little as 3.5% for the down payment.

On the other hand, borrowers with credit scores ranging between 500 and 579 are expected to put 10% down. Either way, the down payments are impressively lower than traditional alternatives.

No Income Limits

The FHA doesn't have set income limits that you have to satisfy to be deemed eligible. However, that doesn't make FHA loans a free pass for everyone. Your lender will want proof of a steady employment history, which they could verify using bank statements, federal tax return statements, W-2s, and pay stubs.

You Can Build Equity Sooner

FHA loans allow borrowers to acquire homes more quickly, enabling them to build their equity earlier. Instead of renting as you take your time to enhance your credit score or save money for a down payment, FHA loans offer you the opportunity to buy a home sooner.

Orlando downtown skyline over Lake Eola at night with urban skyscrapers in Florida

Applying for an FHA Loan in Orange County, Florida

Remember that FHA loans aren't offered directly by the Federal Housing Administration but rather through banks and other lenders approved by the FHA. To apply for an FHA loan in Orange County, follow the following simple steps:

  • Shop multiple FHA-approved banks or lenders - compare a few lenders' costs and mortgage rates to ensure you land the best terms.

  • Complete the loan application - Have crucial information at hand, i.e., your down payment, monthly debts, income, etc.

  • Allow the lender to authenticate your credit score - The lender must verify that you satisfy FHA's credit score requirements.

  • Provide a 2-year work and income history - Include relevant documentation such as federal tax returns, W-2s, or pay stubs, and also include the contact information of your employers.

  • Account for the source of your down payment - The lender will review bank statements or a letter explaining where you're sourcing the funds for your down payment and closing costs, especially if you have a high DTI or a credit score of under 580.

  • Document and explain the defaulted federal debt (if any) - Lenders employ the CAIRS system to determine if you have any defaulted federal debts or student loans, which you'll have to explain.

Is Using Your FHA Loan to Buy a Home in Orange County, Florida, a Great Idea?

In all honesty, yes, it is! Florida is generally favored for home buyers due to its all-year-round warm weather and the luring Floridian lifestyle.

In simple terms, living in the Sunshine State is a dream for many, and it's even better if you own a property here. Particularly for Orange County, economic opportunities are plenty, the neighborhoods are safe, home ownership is feasible (especially if you qualify for an FHA mortgage), and you also get to enjoy the many outdoor attractions and fun things to do around.

Speaking of fun things to do and outdoor attractions in Orange County, here are some worth checking out:

Orlando Museum of Art

The Orlando Museum of Art is undoubtedly one of Orange County's points of interest, especially if you're a history fanatic. It's home to an assortment of permanent art collections, from contemporary pieces to the adored African Art and Art of the Ancient Americas.

While here, you can also see the aesthetics displayed by the museum's mid-century architecture, designed by students of the greatest American architect of all time, Frank Lloyd Wright.

Kelly Park

Some miles north of the central tourist districts of Orlando is Kelly Park, which boasts the famous Rock Springs. To ensure everyone gets a taste of the utmost fun, rent the transparent kayaks and go kayaking in the free-slowing spring that stays consistently at 68°. It's the perfect destination to bring your family or come with friends.

Besides kayaking, the park also boasts nature trails for hiking and scenery that creates an incredible atmosphere for picnicking.

Old Town

Situated in Kissimmee, Old Town is a notable destination offering a blend of old-school charm, a live amusement park, and a considerable share of shopping opportunities.

It's the perfect spot to bring your family, given the many things to do here, from trying out the massive 36-meter Ferris wheel to singing in karaoke, video arcade games, car shows, live music, family movie screening, and even traversing a haunted house.

Tapa Toro

Tapa Toro is your spot if you want the best dining experience while enjoying contemporary Spanish cuisine. The restaurant boasts a fantastic atmosphere, not to mention a vibrant tapas menu, a unique 12-seat paella pit, and a notable selection of imported wines, all of which give you a complete experience of Spanish culture and flavors.

Ready to Live in Orange County, Florida?

Again, buying a home in Orange County, Florida, is easier than ever, thanks to FHA loans which boast low down payments and less stringent credit requirements. As such, there's nothing to stand in your way of being the newest homeowner in Orange County. So, don't stall anymore; apply for your FHA loan today!

With over 50 years of mortgage industry experience, we are here to help you achieve the American dream of owning a home. We strive to provide the best education before, during, and after you buy a home. Our advice is based on experience with Phil Ganz and Team closing over One billion dollars and helping countless families.

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