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FHA Loan in St. Johns County, Florida: Learn About the Low Down Payment Options

Are you a first-time home buyer in Florida having trouble obtaining a loan from private mortgage lenders? Is it part of the reason you have low credit scores? If so, an FHA loan could be for you. Backed by the Federal Housing Administration, FHA loans offer lower minimum credit score limits and low down payment options.

You may even qualify if you have financial issues such as bankruptcy in your background. For low- to moderate-income buyers with limited cash for a down payment, it's worth exploring what FHA loans offer.

FHA Loans - The Basics

So what are FHA loans, and why might they be attractive to potential homebuyers in St. Johns County? As mentioned, they're a type of loan with government backing and less restrictive financial requirements.

They require only a 3.5% down payment, and down payment assistance programs are available from the Florida Housing Finance Commission.

FHA loans come in 15- and 30-year terms with fixed interest rates, meaning the interest rate remains the same for the duration of the loan. Let's take a closer look:


The Federal Housing Administration backs FHA Loans and insures them, which means it protects the lender if you default on your loan.

Banks are willing to loan money to homebuyers with lower credit scores and less cash for a down payment because FHA loans are insured.

Suitable for first-time home buyers

FHA Loans are ideal for first-time home buyers with lower down payment options and minimum credit score limits than conventional loans.

Lower credit score requirements

The credit score requirements for FHA loans are lower than other loans. For instance, individuals with credit scores as low as 500 may still qualify.

If your credit score is in the 500 to 579 range, you can qualify as long as you can afford a down payment of 10%.

A couple of other things to consider when choosing your loan: You may still qualify if you have financial issues - such as bankruptcy - in your history; Closing costs are rolled into your loan in many cases.

FHA Down Payment

Among the most attractive features of FHA loans is that they provide the option of a lower down payment than other loans.

While a conventional loan may require a 20% down payment - to avoid paying for private mortgage insurance - you make a down payment of only 3.5% for FHA loans if you have a credit score of at least 580.

Florida offers a competitive down payment assistance program for first-time home buyers. As mentioned, the minimum down payment is 3.5% of the purchase price. The maximum loan for a single-family home is $420,680 (June 24, 2022).

If your credit score is in the 500 to 579 range, a 10% down payment is required.

You can use cash for your down payment, provided it qualifies as gift assistance. Gift funds must be given from a donor to a borrower in cash or equity without the expectation of repayment. The gift must be well-documented to ensure that it's not a loan.

While down payment assistance programs are usually meant for first-time home buyers, repeat home buyer often qualifies if they haven't owned a home in at least three years.

Loan Requirements

You must meet specific requirements to qualify for FHA loans.

  • You're a United States citizen, have a valid Social Security number, currently reside in the U.S., and are of legal age according to your state's laws.

  • You have a history of honoring your debts. Lenders will review your work history for the past two years and your history of paying bills such as rent and utilities.

  • Lenders want proof of recent and steady employment as assurance that borrowers can pay the mortgage.

  • People behind income tax or student loan payments must agree to a repayment plan to be accepted.

  • If you've had a bankruptcy or foreclosure, two or three years must pass before you qualify for the loan. However, exceptions are sometimes made for borrowers who've re-established good credit and can prove that their financial affairs are in order.

  • An FHA-approved appraiser must appraise your home.

  • You qualify for a new loan if the home will be your primary residence, i.e., it can't be a second home or an investment property.

  • You must have an inspection of the home to make sure it meets minimum property standards.

  • You have to occupy the home within two months of closing.

Closing Costs

FHA lenders can charge no more than 3 to 5% closing costs. Meanwhile, the FHA allows up to 6% of the closing costs - such as fees for an appraisal, for example - to be covered by lenders, sellers, or builders.

Cash Alone Won't Work

When purchasing any mortgage, something essential to consider is that "mattress money" - cash set aside for significant expenses - won't qualify you for the loan.


For one, banks must determine a legitimate source of cash. That money under the mattress can raise red flags, and real estate agents are looking for suspicious money-related activity.

Funds stored in a remote part of the house leave no "paper trail," meaning the lender can't verify its origins. Moreover, cash isn't indicative of your financial health and long-term financial habits.

Why else?

  • As mentioned, most title companies won't accept cash at closing. They'll only accept a bank-issued cashier's check or a wire transfer from the bank.

  • Keeping cash isn't safe. Various things, such as a robbery, fire, or flood, could wipe out most or all of your stored-away cash.

  • Your cash isn't gaining value. Even a standard bank savings account that earns less than 1% a year is better than the 0% (which your money would make).

  • On average, inflation rises 3% yearly, and cash can't keep pace - while essentially losing value. Investing your money - such as in a mutual fund - can keep it ahead of the annual inflation curve.

  • A pre-approval mortgage letter from a lender won't help if the bank can't determine a legitimate source of cash.

So, what to do?

Your cash must be in a bank account for at least 60 days to be part of asset calculations. The bottom line is that you should open a bank account as quickly as possible. After 60 days, you can begin your search for a home.

Types of FHA Loans

There are several FHA loans from which to choose:

Fixed Rate Loan

Again, FHA loans come with low down payment options. They're available in fixed rate terms of 15 and 30 years and, as mentioned, offer lower credit score requirements.

Financing is available for single-family houses, manufactured and mobile homes, townhomes and condominiums, and multi-unit homes of up to four.

While financing a mobile or manufactured home is possible, securing a loan could take some time. Mobile and manufactured homes often come with higher insurance rates, which make them riskier investments for lenders.

Adjustable Rate Loan

An FHA adjustable rate mortgage features an interest rate that adjusts over the loan's term - usually one that gradually increases. The advantage is that the initial rates are much lower than fixed-rate loans.

An adjustable rate loan might be for you if you expect pay increases that allow you to afford a higher rate or if you plan to sell your home before your rate increases.

Energy Efficient Mortgage

The FHA's Energy Efficient Mortgage program focuses on home upgrades that can lower utility bills. Examples include new insulation or solar and wind energy programs.

203(k) Loan

This loan helps buyers purchase and renovate a home with a single mortgage. They can also use the loan to refinance their existing mortgage while adding the cost of remodeling projects into the new loan.

An FHA 203(k) loan comes in two types: a limited version with a more straightforward application process while stipulating that repairs/improvements must be $35,000 or less; and the standard version, which requires more paperwork and applies to improvements of more than $5,000.

The total property value in the standard version must still fall within the FHA mortgage limit for the area.

Section 245(a) Loan

Borrowers who expect their incomes to increase in the future may choose a 245(a) Loan. This loan features a Graduated Payment Mortgage with lower monthly payments that increase over time.

The 245(a) Loan also includes a Growing Equity Mortgage with scheduled increases in monthly principal payments. Both the GPM and GEM promise shorter loan terms.

FHA Reverse Mortgage

Reverse mortgages allow homeowners to receive cash disbursements (monthly) by liquidating the equity they've built in their homes. They're often an attractive option for older Americans who already own their home and want to increase their cash flow.

To qualify for an FHA Reverse Mortgage, you must:

  • Be at least 62 years old

  • Own your home outright or have a large amount of equity

  • Live in the home the majority of the time.

FHA loan application and a model of home

FHA Mortgage Insurance Premiums

The FHA requires that you pay mortgage insurance premiums - an upfront and an annual premium.

Upfront premium

You can pay the upfront premium at closing or roll it into your loan. The funds are deposited into an escrow managed by the U.S. Treasury and go toward the mortgage repayment should you default on the loan.

Annual premium

The term "annual" premium is deceiving because borrowers make monthly payments. These payments range from 0.45% to 1.05% of the loan amount and vary depending on the length of the loan and the loan amount.

The FHA mortgage premiums are cancelled after 11 years as long as the borrower financed 90% percent of the property's value, i.e., anyone who put at least 10% down.

Note - You may be eligible for a tax deduction on the amount you pay in premiums. If so, you'll need to itemize your deductions.

Applying for FHA Loans

FHA loans are available through FHA-approved lenders. These lenders set their rates, costs, and underwriting standards as long as FHA minimums are met.

Some essential steps in the loan application process include:

Compiling documents

Potential lenders will take a complete look at your finances. Have the following documents ready before you apply for the loan:

  • Two years of tax returns
  • Two recent pay stubs
  • Your driver's license

  • Statements of your assets, such as checking and savings accounts, and investment accounts such as a 401(k)

Knowing your budget

Make an honest assessment of how much you can spend on a home before you apply. Factors to consider are your current income, savings, and expenses.

Compare offers

It's important to get pre-approval from multiple lenders to ensure you're getting the deal that best works for you.

FHA vs. Conventional Loans

We've discussed the many features and benefits of FHA loans. But how do they compare with conventional loans?

  • Unlike FHA loans, a government agency doesn't insure or guarantee a conventional loan.

  • Conventional loan requirements typically require a credit score of 620 or higher.

  • You must make a down payment of 20% for a conventional loan, although it's not a requirement. However, if you don't come up with the 20%, you'll have to pay private mortgage insurance - which protects the lender if you default on the loan.

  • Conventional loan interest rates are often higher than FHA loans but depend on various factors, including your credit score and the loan-to-value ratio. LTV refers to the loan amount compared to the property's value.

The bottom line is that FHA loans offer a path to homeownership for first-time buyers who can't meet conventional loan requirements. It's worth researching to determine whether it's the best loan type.

Things To Do in St. Johns County, Florida

Living in St. Johns County gives you access to many kids- and family-friendly activities and unique dining experiences. Here are just a few:

  • Marineland Dolphin Adventure - Located in St. Augustine, Marineland Dolphin Adventure is a dolphin conservation center where visitors can view Atlantic bottlenose dolphins and receive access to the Sea to Shore Aquarium, which features a variety of aquatic species.

  • St. Augustine Splash Park - The Splash Park is open from dawn to dusk every day and is perfect for little ones. It also features benches and covered picnic tables. Admission is free.

  • Fountain of Youth Archaeological Park - The waterfront Fountain of Youth Park is jam-packed with history, allowing visitors to learn about the first Spanish settlers in North America. It's also a working archaeological site.

  • St. Augustine Pirate & Treasure Museum - The Pirate & Treasure Museum offers a one-of-a-kind experience that transports visitors back to the Golden Age of Piracy.

  • Cantina Louie - Featuring Mexican street food, Cantina Louie offers top-quality food with an atmosphere suitable for any occasion.

  • Back 40 Urban Fresh - Back 40 Urban Fresh blends Tex-Mex, vegetarian, and Caribbean cuisine in authentic dishes for guests of all ages.

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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