(Mar 25, 2023)
If your finances and buying property in Polk County don't seem to marry, you can use an FHA loan to make the impossible possible.
Read on to learn more about the FHA loan program, including what it is, its benefits, and eligibility requirements. Our bonus section will also introduce you to exciting activities your kids can gorge themselves on when you move to Polk County. Enjoy.
Are you a Hometown Hero? Find out your eligibility for the Hometown Heroes Loan Program in Polk County, Florida.
What are FHA Loans?
An FHA loan is a mortgage solution backed by the United States FHA (Federal Housing Administration) and issued by FHA-approved lenders (mortgage companies, banks, etc.). That means the FHA doesn't fund these loans directly. It simply protects lenders against defaulters' losses.
The FHA loan program was introduced in 1934, while the Great Depression was taking its toll and making homeownership impossible for many Americans. Its main objectives then were facilitating home financing and helping US citizens enjoy improved housing standards.
Not surprisingly, the FHA loan program has been quite effective and successful. Since its inception, this platform has served around 44 million homeowners. Moreover, the FHA has backed over 4 million home purchase loans since 2008.
And many people continue to love FHA-backed loans today. Why? First and foremost, an FHA loan comes with low down payment requirements and reasonable rules, which we've discussed extensively in the next section.
FHA Loan Down Payment Rules
Before we dive into the FHA rules, let's discuss the program's down payment. Depending on your credit score, the minimum FHA loan down payment can be 3.5% or 10%. 3.5% is only accessible to borrowers with a minimum credit score of 580. If yours is less than that, expect to get the second option, a 10% minimum down payment.
With that in mind, here are the primary FHA down payment rules everyone should know:
No one can get an FHA-backed loan without a down payment
You may be familiar with several zero-down payment loan options, such as USDA (United States Department of Agriculture) and VA (Veterans Affairs) loans. They don't require borrowers to put any money down, which sounds fantastic.
But FHA-backed loans don't have a no-money-down feature. That means all participants must pay a down payment for new home loans. So, if you were searching for a platform that doesn't require participants to put money down, this may not be a good fit for you.
The FHA down payment must be paid upfront
The FHA loan program requires borrowers to pay their down payments upfront. Up-front means you must cater to the entire down payment before buying and financing your chosen property.
Most importantly, the FHA doesn't allow involved entities to include down payments in the home loan cost. Therefore, if you can't afford to put money down upfront, the only option left is to try another alternative, like seeking down payment assistance.
The FHA may accept down payment assistance depending on your state
Down payment assistance refers to programs and funding options that make it easier for prospective homebuyers to collect the money they need to cover down payments. So, if you have a hard time scrounging up enough to put down on your dream house, there's hope after all!
But, before you celebrate this excellent news, note that the availability of down payment assistance depends on what agencies in your locale or state have to offer. For instance, if you live in Polk County, you may get up to $7,500 from the Housing Finance Authority of Polk County and use it to cover the down payment and closing costs.
Moreover, the FHA allows participants to use down payment gifts, provided they come from approved sources, and the recipient won't have to pay them back.
The FHA has approved down payment sources
Does the FHA accept down payments from any source? No. The platform accepts cash from acceptable sources like checking and savings accounts, savings bonds, 401K accounts, and IRAs (individual retirement accounts).
Not to forget, all FHA loan down payments must be accompanied by a paper trail. That means that if you were planning to use a bag of money sourced from a friend or any other well-wisher to cover this expense, too bad.
On the other hand, you can use the money saved at home to pay the down payment. But, before doing that, you must explain in writing how you accumulated the funds involved and the amount of time you took to do it. And that's all. The FHA also requires lenders to use the information provided to gauge the accumulation's reasonableness.
To summarize, if you don't want to tackle lengthy procedures and inquiries, try keeping any funds you plan to use for an FHA loan down payment in a savings account. That will ensure a paper trail and make getting an FHA-backed mortgage easier.
FHA Loans vs. Conventional Mortgages
The following will help you understand why FHA loans are so different from conventional mortgages:
Down payment requirements
FHA's minimum down payment for borrowers is 3.5%. That is considerably lower than what many conventional mortgage options demand: up to 20%. That makes FHA-backed loans the best solution for home buyers that can't put a lot of money down on the house.
And to sweeten the deal, you can use gift funds to cover an FHA loan down payment if you are cash-strapped. But that can only be possible if the money is from an eligible source like a family member, charitable organization, or labor union.
Credit score requirements
Did you know that the 3.5% down payment offer for FHA loans is available to eligible borrowers with a minimum credit score of 580? That is reasonable, but it's just the tip of the iceberg. FHA-backed loans are also available to borrowers with bad credit and financial issues like bankruptcy!
Generally, if your credit score is below 580, you may get an FHA-backed loan if you are prepared to put down 10%. On the other hand, getting a conventional mortgage can be nigh impossible if your credit score is below 620. And if you do, you may have to pay exorbitant interest rates.
Mortgage insurance requirements
You may know that most lenders require borrowers to pay PMI (private mortgage insurance). PMI protects the lending institutions from borrowers who later turn into defaulters. The good news is FHA loans don't require PMI.
However, although paying PMI isn't necessary when FHA mortgages are involved, when you opt for this loan program, expect to pay a mortgage insurance premium (MIP). Like PMI, MIP protects the lenders against losses accrued from defaulters.
The FHA's MIP equals 1.75% of the total loan amount. So, if you take out a mortgage worth $300,000, expect to make a MIP upfront payment of $5,250. Note that every borrower has to pay the mortgage insurance premium, no matter the amount you put down.
Interest rates
Opting for a mortgage with lower interest is advisable because it means reduced monthly payments. That said, FHA loans often attract lower interest rates than conventional mortgages.
For example, an average 30-year fixed conventional loan attracts approximately 5.875% and 5.955% APR while most 15-year fixed conventional mortgages come with around 5.25% and 5.383% interest rates. Conversely, the FHA mortgage rates for 30-year and 15-year loans are approximately 5.5% and 4.99%, respectively.
So, if a lower interest rate is what you seek, trying the FHA loan program may be a good idea.
FHA Loan Requirements
Here are some of the essential FHA loan requirements:
Minimum credit requirements
Although the FHA's low 3.5% down payment offer is for applicants with a 580 minimum credit score, you can get an FHA loan with as low as 500.
But a low credit score comes with several downsides. First, you must put down at least 10% to enjoy an FHA mortgage. Moreover, your lender will consider the mortgage a low-prime loan, meaning it will be devoid of numerous juicy terms, including lower interest rates.
Where does that leave individuals with no credit or bankruptcy issues? The simple answer is not in a tricky position. The reason is that the FHA loan rulebook forbids lenders from rejecting loan applications based on a borrower's lack of credit history or decision to refrain from using credit.
Minimum income requirements
If you are worried your income may disqualify you from getting an FHA loan, fret no more. FHA-backed loans have zero minimum or max income requirements. So, your salary should be the obstacle that stops you from getting a mortgage.
Nevertheless, you can't get an FHA loan if you have a delinquent federal loan, be it a student loan, tax lien, or any other debt. But the bankruptcy rules are different.
Any borrower filing for Chapter 7 bankruptcy should wait for its discharge, then hold back for two or more years before applying for an FHA loan. If you belong in this category, trying to get an FHA period before the "seasoning period is over" will only lead to disappointment.
On the other hand, if you've filed for Chapter 13 bankruptcy and have been making payments as required for at least a year, you may be eligible for an FHA mortgage.
Documentation requirements
Most lending institutions require you to submit the following documents when applying for an FHA-backed loan:
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Personal documents - driver's license, social security card, homeownership papers, work permit or green card (if applicable), and divorce, child support, alimony papers, etc.
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Employment documents - income tax returns, paycheck stubs, W-2 & 1099 statements, year-to-year profit and loss statements, etc.
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Savings documents - bank statements and account statements for 401k, retirement, money market, mutual funds, etc.
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Credit documents - recent utility bills, bankruptcy & discharge papers (if applicable), landlord's information, etc.
- Property documents - property tax bill, a current mortgage payment coupon, a multi-unit property's rental agreement, etc
Property requirements
The FHA can only finance a home that meets specific standards. First, it must be safe and secure for the occupants. The property must also have quality features and amenities, including a functional roofing system, water heaters, electrical systems, sewage disposal, etc.
If a home isn't free of conditions and hazards likely to undermine the safety and health of occupants, the FHA can't support its financing. The same applies to a property showing clear signs of termite infestation, insufficient access to crawl spaces, missing electrical fixtures, lead-based paint, and other significant problems.
How to Apply for an FHA Loan?
Ok. You've established your eligibility for an FHA mortgage, found the reasons to live in Polk County reasonably convincing, and are ready to buy a house in this region. What's left? Applying for an FHA-backed loan! You can do that by following these steps:
- Find an FHA-approved lender in Polk County
- Prepare necessary documents
- Provide required information and details
- Submit your application
Why Use an FHA Loan to Buy a Home in Polk County, Florida?
If you meet all FHA loan requirements and are ready to try your luck, don't do it just yet. Before applying, where would you like to buy a home using your FHA-backed mortgage? If your answer isn't Polk County, it may be time to reconsider.
Polk County is one of the best places to live, especially if you have or plan to have kids. That is so because your little ones can enjoy the following in the region:
Indoor play gyms
Indoor play gyms are a ton of fun for kids. These places have everything the little ones need to enjoy diverse activities, from climbing wooden ladders and swinging on monkey bars to sliding down slides and scaling rope walls.
The good news? Polk County is home to many world-class indoor playgrounds. These include Family Fun Center, Arcade Games, Funtasia Soft Play, and Lazer Tag.
Movie theatres
The movies are among the best places to go with your kids and have a grand time as a family. And theatres have a lot to offer to interested families. You can stroll down to the nearest movie theatre, order sodas and popcorn for the entire troupe, and enjoy a family-friendly animation movie, comedy, thriller, etc.
If there's anything Polk County has plenty of, it's movie theatres. Popular options include the Cinepolis IMAX Movie Theatre, CMX Grand 10 Theatres Winter Haven, and Regal Cinemas Eagle Ridge Mall 12.
Shaded playgrounds
The playground can be a daytime nightmare for parents and kids, especially in hotter seasons like summer. And that is an understatement. Open spaces often lead to excess sun exposure, leading to numerous problems in kids, including skin cancer, eye injury, exhaustion, and sunburns.
Fortunately, Polk County has many shaded playgrounds, Christina Park, Dobbins Park & Playground, Honey Park, and Auburndale Downtown City Park, to mention a few. These are completely safe for children, even in the blistering summer heat.
Riding adventures
Horse riding may positively impact your kid's development. How? First, it bolsters the young one's fitness, physical well-being, and mental health. The reason is that riding is a great outdoor activity that's physically engaging.
If you want your family to enjoy uncapped riding adventures regularly, move to Polk County. This region has many top-tier riding stables like Rockin' W Ranch and Horsespring Farm.
Picnics
All parents should picnic with their kids because it allows them to bond in peaceful, distraction-free environments. Plus, the fresh outdoor air does more than improve your loved ones' mental health and overall well-being.
If you want to enjoy everything we've listed above, try picnicking in Polk County's Peterson Park, Child B Bar Reserve, Munn Park, and Lake Morton.
Ready to Become a Polk County, Florida Resident?
Now that you know the nuts and bolts of FHA loans, benefits, requirements, and application process, the ball is in your court. If you find FHA-backed mortgages enticing and reasonable, go for it! We hope your application will go through, and you'll use the loan to buy a lovely home in Polk County and raise your loved ones in this beautiful region. Good luck!
(Mar 25, 2023)
