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

Everyone dreams of becoming a homeowner. However, few people can afford to buy a house with cash upfront, with most aspiring buyers opting for mortgages and home loans. The homeownership journey can be daunting and financially draining. It entails searching for a suitable property, finding the right lender, and applying for a loan.

That’s not all. You must meet various, sometimes stringent, requirements to qualify for a home loan. Even if you qualify for a mortgage, you must raise the required down payment, which is usually 20% of the home’s value.

Fortunately, your journey to becoming a homeowner can be much smoother with FHA loans. This exclusive home loan has a lower down payment and flexible eligibility requirements.

Here’s a breakdown of everything you need to know about FHA loans and how they can help you buy property in Seminole County, Florida.

What Is an FHA Loan?

An FHA loan is a mortgage backed by the federal government through the Federal Housing Administration. The FHA sets the terms and requirements, but private and commercial lenders like banks, credit unions, and mortgage companies issue the loans. Since the loan is federally-insured, lenders are willing to accept riskier borrowers and offer favorable terms to applicants with no credit history.

Any aspiring homebuyer can apply for an FHA loan, but it usually targets first-time homebuyers who might have difficulty qualifying for a private mortgage. It allows low-to-moderate income earners a chance to become homeowners even with a less favorable credit rating.

Unlike traditional home loans that usually require more than 20% down, FHA loans offer lower down payment requirements from as low as 3.5% and not exceeding 10%. Besides, eligible borrowers can qualify for down payment assistance programs once they secure an FHA loan.

How Does an FHA Loan Work?

Even though FHA loans have been around since 1934, very few people take advantage of this home financing program because they don’t know how to go about it. Some aspiring buyers don’t even know they might be eligible for FHA loans, opting for the private mortgage route instead. Understanding how an FHA loan works can help you decide if it is the right credit option for you.

Here are FHA loan requirements and considerations for borrowers:

Property Types and Requirements

When pondering whether or not to take out a mortgage, you’ve probably found your dream home or something close to that. Nonetheless, an FHA loan is not your typical mortgage, as you cannot use it to purchase any property or available home in the market.

Loan proceeds are not for vacation homes, rental houses, or investment properties. FHA-eligible homes include:

  • Single-family homes
  • Multi-family properties (multiplexes)
  • Condominiums
  • Manufactured homes

The home you intend to purchase must be your primary residence, and you must move in within 60 days of closing the loan.

Loan Terms

FHA loans are available in 15-year and 30-year terms with fixed or adjustable interest rates, giving borrowers more financial options. A 15-year FHA-backed mortgage might attract higher monthly payments but is cheaper in the long run and shortens your homeownership journey. The 30-year fixed-rate mortgage could be ideal if you want to lower your monthly payments and make them more affordable.

Minimum Credit Score

Your FICO score is one of the most critical factors in determining your eligibility for a mortgage. However, FHA loans are more flexible on this front. While most private lenders require a FICO score of 620 for a conventional loan, FHA loans have a minimum credit score of 580.

The credit score requirements for FHA loans are lower since the program’s primary objective is to make homeownership more affordable for everyone, regardless of their income level. You can qualify for an FHA loan even if you have a short credit history or your FICO score is lower than 580.

Down Payment Options

When taking out a mortgage, most lenders require you to commit a specified percentage of the home’s value as a down payment. The down payment lowers the risk on lenders since it reduces the amount you’ll need to borrow to finance your home purchase.

While traditional mortgages require more than 20% down, FHA loans offer affordable down payment options from as low as 3.5%. Your FICO credit score directly determines your down payment amount. Borrowers with a higher credit score of 580 or more qualify for the 3.5% down, while applicants with low FICO scores between 500 and 579 may have to pay more, but not exceeding 10%.

These lower down payment requirements explain why FHA loans are becoming more popular. After all, you don’t have to struggle to save substantial cash for ages. Besides, you can apply for down payment assistance from the Florida Housing Finance Corporation or use donor gift funds for down payments.

Mortgage Insurance Premiums

Even though FHA loans are government-insured, successful borrowers must pay two mortgage insurance premiums upfront and monthly, respectively. Since the down payment is only 3.5%, FHA loans are highly risky to lenders. The purpose of mortgage insurance is to lower the risk if you default on the loan.

Here’s a breakdown of the Mortgage Insurance Premiums on FHA loans:

  • Upfront Mortgage Insurance Premium - Borrowers must pay an upfront mortgage insurance premium at closing. The amount is usually 1.75% of the base loan amount. If you don’t have adequate funds to pay the fee upfront, you can roll it over into your loan, but doing so will increase the overall cost of your mortgage.

  • Annual Mortgage Insurance Premium - Since FHA loans have a loan-to-value ratio greater than 90%, borrowers must also pay an annual mortgage insurance premium (paid monthly). The insurance premium is usually 0.45% to 1.05% of the base loan amount. The lender will divide the total insurance premium by 12 to determine your monthly premiums.

Maximum Debt-to-Income Ratio

Your debt-to-income (DTI) ratio measures your gross monthly income against your debts to determine if you can service your loan without struggling or defaulting. Your lender will calculate your DTI by dividing your monthly obligations by your gross income. The lower your DTI ratio, the higher your chances of securing a loan.

While most traditional mortgages require a DTI ratio of 40% or lower, FHA guidelines are more lenient, allowing a DTI ratio of 43%. You can qualify for an FHA loan even if you have a higher DTI ratio as long as your credit score is high.

Income Requirements

Your eligibility for an FHA loan does not depend on a specified income amount. In any case, this home loan does not have income limits. However, your work history is a determinant, and you must show proof of steady employment.

The lender must verify your most recent two-year work history, and you must explain any employment gaps spanning over a month. You may have to provide your most recent federal tax returns, bank statements, and supporting documents to validate your income.

Interest Rates and Structure

FHA loans have highly competitive interest rates, making them more affordable to borrowers. The government guaranty on FHA loans reduces the risks, allowing lenders to provide financing at lower rates.

The interest rates on FHA loans can be fixed or adjustable. Even though most FHA loans come with fixed interest rates, you can apply for adjustable rate loans to lower your monthly payments even further.

Closing Costs

You must pay closing costs to process and secure your FHA loan. These transaction fees are similar to those charged on traditional mortgages.

Depending on the lender, the closing costs may vary between 2% and 6% of the home value. Other determinant factors of FHA closing costs include the lender fees, loan amount, and credit score.

FHA Loan Limits

FHA loans have limits on how much you can borrow. These limits change yearly based on fluctuating home prices and vary from county to county. The property type also determines the loan limit.

The FHA loan limits for Seminole County in Florida are as follows:

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

Happy family after buying new house against house outline

How to Apply for an FHA Loan?

If you meet all FHA loan requirements and are ready to apply for a FHA loan in Seminole County, Florida, here are the simple steps to help you get started:

Find an FHA-approved Lender

Assuming you’ve already identified a house for sale, the first step to applying for an FHA loan is to find an approved lender. Even though the government guarantees the loan, it does not issue funds directly to applicants. Private and commercial lenders do the actual financing. The good news is that most mainstream banks, mortgage companies, and credit unions offer FHA loans. You can also locate an approved lender online.

Check FHA Loan Eligibility

Finding an accredited lender is just the start. You must qualify for the loan to finance your home purchase. FHA loans have different eligibility requirements, and your lender will assist you in checking whether you are eligible for the loan.

The lender will assess and verify your credit score, DTI ratio, work history, employment status, income, and overall creditworthiness. Nonetheless, qualifying for an FHA loan depends on many factors, meaning you may still be eligible even with a less favorable credit rating.

Submit Your Loan Application

You may apply for an FHA loan by filling out an online form or visiting your bank for assistance. A loan clerk will help you with filling out the paperwork. After confirming your eligibility, you can apply and submit your loan application to the lending institution.

Provide Required Documents

The lender may require supporting documents to verify your income, work history, employment status, and general credit information.

To speed up the process, submit the following documents:

  • Copies of payment stubs
  • Recent bank statements
  • Federal income tax returns
  • Credit score report

Get Approved

Getting approved is the last step. However, you may have to discuss with the lender concerning closing costs before securing your loan. Depending on the lender, the final approval might take between 30 and 50 days.

Saving Money for FHA Loan Down Payment

While the FHA has favorable down payment requirements, raising the required deposit can be challenging for many borrowers. You have to save for a while until you accumulate the initial down payment.

However, saving money for your down payment is not as straightforward as it might seem. How and where you save the money can make or break your loan application. Some borrowers opt to keep their savings under the mattress, perhaps to avoid bank charges. However, their efforts might prove futile in the end.

If you keep your savings under the mattress, you may not qualify for an FHA loan. Lenders want to know the source of funds before issuing loans. The source must be verifiable since they don’t want applicants to fall into more debts by taking another loan to fund their FHA down payment.

The proper way to save money for your down payment is as follows:

  • Open a savings account under your name with a reputable bank
  • Deposit money into the account
  • Keep the account active by transacting more often
  • After 60 days, find your dream home
  • Contact an FHA lender
  • Apply for an FHA loan

FHA Loan Down Payment Assistance Programs

Although FHA loans have lower down payment requirements, not everyone can afford the amount requested. A house costing $500,000 will require a down payment of $17,500 if the rate remains constant at 3.5%. Raising such an amount upfront can be an issue for a low-to-moderate income earner.

Fortunately, the FHA allows borrowers to use gift funds and grants for down payments. However, the source of the funds must be verifiable and well-documented. If not, you may not qualify for the loan.

Borrowers can also apply for down payment assistance from organizations such as the Florida Housing Finance Corporation. The finance corporation administers various down payment assistance programs to help eligible borrowers raise the required amount. You can qualify for up to $10,000 in down payment assistance.

Pros of FHA Loans

  • Flexible eligibility requirements
  • Low down payment of only 3.5%
  • A minimum credit score of 580
  • Competitive interest rates
  • Lenient Debt-to-Income Ratio of 43% or higher
  • Loan relief
  • Down payment assistance programs

Cons of FHA Loans

  • Mortgage insurance premiums
  • Rigid property standards
  • Less attractive home offers
  • Unwilling home sellers

Top 5 Things to Do in Seminole County, Florida

Seminole County is one of the best places to live and work, thanks to its incomparable quality of life, unmatched diversity, progressive leadership, and business-friendly environment. Its central location makes it easily accessible to and from major destinations in the state and country.

It is never a dull day in Seminole County, as it is home to some of the finest attractions ranging from scenic waterways to natural springs.

Here is a list of the top 5 things to do and places to visit in Seminole County:

Explore the Central Florida Zoo & Botanical Gardens

Nature lovers will undoubtedly enjoy a visit to the Central Florida Zoo & Botanical Gardens. This 116-acre zoo is at the forefront of animal conversation and is home to over 350 animals saved from extinction. The zoo provides informative, educational tours and memorable animal encounters. You can feed giraffes or get up close with rhinos for an extra fee.

Visit Cranes Roost Park for Memorable Outdoor Events

The Cranes Roost Park is a must-visit destination for exciting outdoor events. This 45-acre park features a lake where you can fish various species, from bass to catfish. It also has a modern Amphitheater with stadium-style seating that hosts numerous cultural events. The choreographed fountain show at the European-style plaza is another popular attraction worth your time.

Dine at the El Zocalo Mexican Restaurant

Seminole County is home to a significant Hispanic community, making it the perfect place to sample delicious handcrafted cuisines. From burritos to quesadillas and fajitas, you can get the finest mouthwatering delicacies at the El Zocalo Mexican Restaurant in Sanford. This classic restaurant offers a variety of homemade meals and cocktails for a fantastic fine-dining experience.

Enjoy Boating Tours at Lake Jesup

Lake Jesup is one of Central Florida’s largest lakes, encompassing approximately 16,000 acres of open water. You can tour the lake using the airboat services available in the vicinity. Lake Jesup has a lot to see as it is home to the densest population of alligators and has a variety of bird species. The management also allows fishing, and you can expect to catch a variety of fish ranging from bass to bream and crappie.

Tour the Must-See Lake Mary Museum

Previously a community center, Lake Mary Museum is a historic building that houses the origins of Lake Mary city. It has plenty of memorabilia and collectibles that describe the city’s colorful history. It also hosts temporary and permanent exhibits that provide great historical insights, making it an ideal stop for students and history lovers. The best part is that admission to this museum is free.

Bottom Line

Contact the Florida Housing Finance Corporation if you need help raising the initial down payment for your FHA-backed home loan. The organization administers various down assistance programs to help eligible borrowers raise the required amount. You can qualify for up to $10,000 in down payment assistance.

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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