(Mar 25, 2023)
We write this article to provide you with any necessary information you can use to understand how to apply and if you qualify for an FHA loan. However, we need to understand an FHA loan before learning more about it.
Are you a Hometown Hero? Find out your eligibility for the Hometown Heroes Loan Program in Pinellas County, Florida.
What is an FHA Loan?
As mentioned above, FHA loans are government-backed through the Federal Housing Administration, an agency under the Department of Housing and Urban Development. The FHA insures loans provided to qualifying borrowers, and the agency cushions lenders against any loss if borrowers default on their loans.
As a qualifying applicant, you can get FHA loans with options for low minimum credit scores and lower down payments. However, you'll also have to pay for mortgage insurance. FHA loans are attractive to first-time home buyers because of their lenient requirements. However, you qualifying applicants don't have to be first-time home buyers to apply for FHA loans.
Some advantages of FHA loans include:
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Lower credit score requirements than other house loans.
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Lenders can accept lower down payments.
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Borrowers can qualify for the loan even if they've had financial issues.
- Borrowers can roll in closing costs that come with the loan.
FHA Loan Requirements
You should meet these requirements to qualify for an FHA loan. The requirements include:
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An appraiser approved by the FHA should appraise the home you wish to purchase.
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The home you wish to purchase should be your primary residence, meaning it can't be a second home or investment property.
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You should be ready to occupy the home within 60 days after closing.
- A qualified inspector should inspect the home. The inspection should report that your home meets minimum property standards, i.e., the home should be fit to live in.
Other conditions you'll have to meet to qualify for an FHA loan include mortgage insurance, a down payment, loan limits, credit score, and income requirements. The requirements for qualification are similar for DACA recipients. We'll explore more about them later.
FHA Loan Down Payments
A down payment refers to the percentage of a home's purchase price paid upfront when purchasing the home through a housing loan. The minimum downpayment qualified applicants should make when purchasing a home with an FHA loan directly corresponds to the applicant's credit score.
Your credit score refers to a number used to determine your credit worthiness. The number ranges from 300 to 850 and is used by lenders to determine how much financing they can provide. Individuals with a credit score closer to 300 have a poor credit score and will receive less financing, while those with a credit score close to 850 can get more financing.
FHA loans require you to make a 3.5% down payment if your credit score exceeds 580. The lender may require you to make a 10% downpayment if your credit score ranges from 500 to 579. However, various lenders have varying credit score requirements for FHA loans. Buyers can make a cash down payment with gift requirements for FHA loans, but you should document them correctly.
You should do this to ensure the gift isn't disguised as a loan since it could lead to more problems. You should deposit the money in the bank and let it sit for 60 days before providing it as a downpayment.
FHA Mortgage Insurance
FHA mortgage insurance is the premium paid for an FHA loan. Borrowers must pay this amount to insure lenders against any losses if they default on the loan. Often, the lender requires you to pay the loan for as long as you have an FHA loan.
Lenders assess the FHA loan mortgage insurance in various ways, but first, the lender will charge you an upfront mortgage premium that usually amounts to 1.75% of the base loan amount.
Additionally, you'll have to pay an MIP (Mortgage Insurance Premium) annually based on how long your mortgage runs, the total mortgage amount, the loan-to-value ratio, and how much down payment you place.
Usually, the annual payments will be 0.45 to 1.05% of your mortgage's base loan amount.
FHA Loans and Credit Score
Various factors determine your credit score. They include:
- Your credit type, i.e., loans, credit cards, etc.
- How much credit do you use or credit utilization
- How much time do you take to pay your bills
- Amount of credit you owe on your credit cards
- Amount of recent and new credit taken
You can qualify with a high DTI (Debt-to-Income) ratio if you have a high credit score. DTI is the amount of your gross monthly income used to pay off debts. Your DTI refers to the total payments each month on debt divided by your monthly income before making any tax deductions. The results are expressed as a percentage.
You can determine your DTI ratio by dividing your car loan, student loan, and other debts by your monthly gross income (before making tax deductions). For instance, if your debts (car loans and student loans) total $2000 and your gross income is $8000, then your DTI should be 25%.
Individuals with a low DTI are better off than those with a higher DTI and are more likely to qualify for an FHA loan. However, those with a higher DTI can still qualify with a higher credit score.
The FHA dictates that your monthly mortgage payment shouldn't surpass your monthly gross income by 31%, and your DTI shouldn't exceed 43% in some circumstances if the loan is manually underwritten.
FHA Loan Limits
Borrowers have a maximum limit on amounts they can borrow for FHA loans, which often depends on your potential home's county. By 2022, the Department of Housing and Urban Development states that the maximum lending for FHA loans for high-cost areas should be $970800. The amount can dip to $420680 in low-cost areas.
The limits are set for one-unit properties but can go higher if you have multiple properties. FHA loan limits for purchasing homes in Pinellas County, Florida, are $809150 (four living units) and $420680 (one living unit).
FHA Interest Rates
The FHA provides loans with competitive interest rates over conventional mortgages. The interest rates are low since the loans are government-backed, reducing the risks incurred by lenders. As such, lenders can give loans at lower rates than they usually do.
The rates provided depend on various factors, including your income, prevailing interest rates, credit score, down payment, the amount you plan to borrow, DTI ratio, etc.
FHA Income Requirements
Your income doesn't determine your chance of qualifying for an FHA loan; however, you should be prepared to provide proof of reliable employment history.
You can verify your income by presenting your W-2s, bank statements, pay stubs, and federal tax returns to your lender. Your lender can also ask for other forms of verification.
Types of FHA Home Loans
You can choose between various types of FHA loans available. The type of loan you select dictates how you use the money received and the kind of home you'll buy. Thus, you need to ensure you get the right loan. You should consider another government loan if the FHA loan types below don't match your goals.
FHA loans for purchase
You can get FHA funding to purchase your home with a 3.5% down payment if your median FICO score is 580. However, you should also understand that your DTI should be low if your FICO score is that low. Some lenders require a DTI of less than 38% (excluding your mortgage payments) and less than 45% after including your mortgage payments.
Individuals with a FICO score of 620 can qualify for financing even if they have a higher DTI. However, you may have a problem if your DTI rises more than 57%.
FHA Rate/Term Refinances
You can consider FHA Rate/ Term Refinances if you have low credit but seek to take advantage of lower rates and are in some other form of a mortgage. Choosing this option is excellent since FHA loans have relaxed requirements.
You can apply and get a lower rate if you have a low DTI and a FICO score of 580. You can also add more debt to the transaction if you have a FICO score of 620 or more. You should note that there is the chance that you'll pay MIPs for however long the loan runs or for a minimum of 11 years if you have 10% equity plus an additional upfront premium.
Individuals that already have an FHA loan can save money during this transaction. Let's learn how!
FHA Streamline
FHA Streamline loans allow individuals with existing FHA loans to refinance the terms and rates to fit various unique benefits. For instance, you can refinance your current FHA loan to get a lower rate even when you owe more on the home than it's worth. The FHA does this to help the borrower afford the monthly payments and entice them to stay in their home, which also benefits the FHA.
You can get a lower mortgage insurance rate since FHA Streamlines MIP is an annual 0.55% of the total loan amount. Better yet, the upfront monthly insurance premium is 0.01%. One other benefit of FHA Streamline is reduced documentation. Each situation is different; however, you may benefit from reduced documentation in these areas if you have an existing FHA loan:
- Limited employment verification
- Reduced appraisal requirements
- Less documentation of assets and income
There are other factors you have to remember. For instance, some lenders require a 580 FICO score, make six consecutive payments on the current loan, and wait a set number of days between the first payment on the current loan and the new streamline. Additionally, you have to have minimal late payments on your current loan.
Cash-Out Refinance
You can get a cash-out refinance with an FHA loan; however, various lenders require varying credit scores to qualify. Additionally, the FHA requires you to convert the property value into cash and leave a 15% minimum equity in the home. Individuals using cash-out-refinance require full documentation, including asset sharing, income, and employment verification.
FHA 203(K) Loan
FHA 203(K) loans allow borrowers to allow buyers to buy homes and make renovations on the same loan. The minimum loan balance for the FHA loan is $5000, and you can't borrow less than this. While you can make renovations with the loan, it isn't usually the most affordable.
Any home improvements or repairs should be completed within 60 months if you want to stay within the loan terms. A few projects you can do with the FHA 203(K) loan include:
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Modernizing your home and improving it by adding various systems like automatic garage door openers and central air systems
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Replacing dangerous or old flooring
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Replacing or adding roofing, plumbing, and gutter sections
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Making structural changes or repairs to your home's foundation
- Making your home accessible to disabled individuals
There are two types of FHA 203(K) loans - limited and standard. Standard loans provide more freedom to do repairs, while limited loans involve less paperwork for approval.
Florida Housing Assistance program
Florida's housing assistance program allows you to borrow the money you can use to pay your Mortgage Insurance program and get a principal reduction on the first premium. You can also use the money to pay for closing costs and prepaid or (for the primary reason the program was designed) make a down payment.
However, you should be aware of a few facts. For instance, the loan isn't forgivable. Instead, its payment is deferred except for cases involving a sale, satisfying the initial mortgage, refinancing the property, or when the mortgager ceases occupying the home. Also, you can not combine the loan with the state's other down payment assistance programs.
Is an FHA Loan Good For You?
People debating between conventional and FHA loans' benefits and shortcomings should understand that conventional loans aren't government-backed. Conventional loans have stricter requirements. For instance, you have to have a lower DTI and a higher credit score. On the other hand, FHA loans are non-conforming.
Additionally, you should be aware of other costs regardless of your chosen loan. For instance, you should be ready to pay closing costs depending on your home's price and the mortgage you choose. You should also be ready to pay a homeowner's association fee if you live in such an area. You should also budget 1-3% of the home's purchase price for maintenance.
Things to do in Pinellas County, Florida
There are lots of family-friendly activities to experience in Pinellas County, Florida, including:
Nature Trek
There are many locations to go for a nature trek in Pinellas County, Florida, including the uninhabited barrier island, Caladesi. The island is North of Dunedin, and you can access it by ferry from the Honeymoon Island State Park. You can choose to explore the island with your family on foot or rent a kayak or canoe.
You'll get to observe loggerhead turtles that nest on that side of the coast containing most of the turtle species' global population. You'll get to see the precious baby loggerheads on the part of the coast marked off with yellow tape and (if you're lucky) get to see them hatch.
Culture Quest
Downtown St. Petersburg is the best destination for families and art lovers. You can visit this location, dine in many restaurants, and visit shops, museums, and galleries in a beautiful waterfront setting. You can take your children to the Salvador Dali Museum and see works that redefine your reality.
The museum contains paintings, sculptures, watercolors, photographs, and graphics. You can also visit The Florida Holocaust Museum and experience a moving and profound history. The museum has a vast, permanent collection of traveling exhibits and is open seven days a week.
Honeymoon Island State Park
This state park has been rated as one of the best beaches in Florida. The beach has iconic sunsets, miles of smooth and soft white sand, on-site nature trails, cruises, and even a particular dog beach. The state park is a fantastic coastal destination for individuals and families that want to take a beach walk, sunbathe, relax, snorkel, or play with their dogs.
Great Explorations Children's Museum
The great explorations children museum is the perfect place to take your children when the weather is not perfect for the beach. The museum has engaging, educating, and entertaining activities that will keep your children entertained for hours.
Exhibits present in the museum are interactive, allowing children to participate. The exhibits touch on history, culture, art, the animal world, etc.
La Teresita Restaurant
Pinellas County has a healthy Hispanic culture, including outstanding restaurants serving tasty Hispanic cuisine. One of these restaurants is La Teresita Restaurant. People recognize the restaurant for its homely service and attention offered to customers.
La Teresita restaurant serves the best and tastiest Spanish dishes from the freshest ingredients. Visit La Teresita Restaurant and enjoy a fantastic dining experience in a family-friendly atmosphere.
Conclusion
Pillenas County is one of the best locations to purchase a home in Florida, and one way you could ease the process and get one step closer to owning a home is by applying for an FHA loan. FHA loans are outstanding for new homeowners and individuals looking for funding to buy their homes under less stringent conditions. It will help to check if you qualify to apply for a loan and move into your home as soon as possible.
(Mar 25, 2023)
