Backed by the FHA (Federal Housing Association), the loan can suit you if conventional lenders' down payment and credit score requirements seem restricting. With this type of loan, you may apply even with little down payment savings and a lower credit score.
If you're new to FHA loans, you'd want to know how they work and the requirements you need to satisfy. You'd also want to know the down payment assistance programs you can use with the loan. Here's everything to get you started with the FHA loan process.
What is an FHA Loan?
The Federal Housing Administration introduced FHA loans to the mortgage market to solve the challenges low to moderate-income borrowers faced when applying for conventional mortgages. Since the FHA guarantees them, participating lenders don't have to worry about losing money when a borrower defaults.
One attractive feature of FHA loans is that they come with multiple down payment options. Besides boasting minimum credit score limits, they require you to pay mortgage insurance premiums.
If you want to finance a home purchase with an FHA loan for the first time, lenders will require you to put down as little as 3.5 percent of the loan amount. You also enjoy various perks even when it's not your first time using the loan.
They include the opportunity to apply for home financing when facing financial issues such as bankruptcy and the freedom to have the closing expenses included in the loan repayments.
Understanding the 3.5 Percent Down Payment Requirement
FHA loans come with a down payment requirement like other government-backed home loans. Lenders calculate the down payment amount as a percentage of your home's buying price. It is also the upfront amount you must put down before the lender processes your loan.
While down payments on FHA loans largely depend on your credit score, it's not something you should worry about. The good thing is that you can make a 3.5 percent down payment with a credit score of 580 and above. Lenders also allow a down payment of up to 10 percent for credit scores ranging from 500 to 579.
Most lenders have a mortgage calculator on their site you can use to estimate your monthly FHA loan payments and determine how the down payment affects these payments. They can also allow you to make down payments for an FHA loan in cash using gift assistance. For the gift assistance to be accepted, it must be documented as a gift instead of a disguised loan.
How Do Down Payments on FHA Loans Work?
The down payment amount you choose to pay on an FHA loan will determine the terms for some aspects of your loan repayments. For instance, if you make a sizeable down payment on a property, you're likely to get a lower interest rate or use the loan on a more expensive home.
Learn more about the down payment specific terms set by your lender before committing yourself to make the payment. Consider a down payment amount within the lender's limits for the same.
FHA Mortgage Insurance
As attractive as mortgage insurance may sound, it is a prerequisite when applying for a mortgage with a low down payment. As the name suggests, mortgage insurance helps insure FHA-approved lenders against losses brought by defaulted payments or delinquencies. Lenders expect you to pay a certain amount of mortgage insurance premiums (MIP) with other loan costs.
In most scenarios, you may have to make the MIP payments for the life of your home loan. You may be exempted from this long-term commitment if you put at least 10 percent down on the home, prompting MIP payments to be made only for 11 years.
FHA-approved lenders assess mortgage insurance on FHA loans in several ways. First, they charge an upfront mortgage premium of 1.75 percent of the initial loan amount.
Lenders also charge mortgage insurance as annual premium payments that amount to 0.45 percent to 1.05 percent of the loan. The annual premium payments will be based on your down payment amount, total loan amount, loan-to-value ratio, and length of the mortgage.
How Long Do You Have to Pay For Mortgage Insurance on an FHA Loan?
As of 2013, mortgage insurance premiums no longer work like private mortgage insurance (PMI) paid on conventional home loans. You don't have to attain 22 percent equity in the home for the lender to cancel the PMI requirement automatically.
Today, FHA-approved lenders don't have a limit on the home equity percentage you need to reach for the MIP requirement to be canceled. They only base the timeline for making MIP payments on your down payment amount.
Down Payment Assistance Programs from Florida Housing
Making a down payment on an FHA loan was made easier with the down payment and closing assistance loan offered by the Florida Housing Finance Corporation (FL Housing). The loan comes as a second mortgage to eligible homebuyers.
FL Housing's down payment assistance is only available as a loan if you're using it on a first mortgage loan provided by FL Housing. The down payment assistance options available for other types of loans include:
The Florida Assist (FL Assist)
FL Assist program from Florida Housing offers a maximum of $10,000 for a 30-year term on conventional and government-backed loans such as USDA, VA, and FHA. The down payment assistance comes from a zero percent non-amortizing deferred second mortgage.
Though an FL Assist loan is unforgivable, you can have the repayment deferred. The only case is deferring the repayment won't be possible in case of a transfer, sale, refinancing, or ceasing to occupy the property.
The Florida Homeownership Loan Program
Also known as FL HLP, the Florida Homeownership Loan Program offers a 3 percent fully amortizing the second mortgage of up to $10,000 on a 15-year term. The second mortgage attracts monthly payments with the option of deferring the remaining unpaid loan amount.
Since FL HLP loans require a monthly loan payment, they won't be factored in your debt-to-income ratio during lenders' credit underwriting.
3%, 4%, and 5% HFA Preferred and HFA Advantage PLUS
If you are considering this FL Housing down payment assistance and closing assistance program, expect to get 3, 4, or 5 percent of the base loan amount as a second mortgage.
FL Housing may forgive this second mortgage at a rate of 20 percent per year in a 5-year term. For this to work, you must use the loan with FL Housing's conventional HFA Advantage for TBA or HFA Preferred for TBA first mortgage products.
Is it Okay to Have Cash for a House Purchase Under the Mattress?
The advances in modern banking systems make it easier to save money without risks of theft or other losses securely. Saving your hard-earned money under the mattress won't be a good idea since the mattress money may be suspected to have come from illegal sources or activities. It may also be challenging to use the money to cater for your down payment when looking to buy a home.
As you think of a place to stash your down payment and closing costs savings, put yourself in the lender's position during loan processing. Since lenders need to see a paper trail in your finances, they may refuse to consider you for a loan if the source of your mattress money is unknown or unverifiable.
Many loan applications fall through because of a lack of verification of assets or income. Cash on hand can no longer be used to verify your earnings since the mortgage provider will be doubtful about the source of the finances.
While a lender may give you a pre-approval letter after meeting their minimum requirements, it may be difficult for you to finance your dream home with a home loan if a bank can't prove the actual source of the cash. The pre-approval letter will only suggest that you have sufficient credit, income, and assets to support your loan.
Ways You can Deposit Money Hidden Under the Bed
Not only do you have to deposit the cash savings in a reliable bank account, but you also have to let it stay there untouched for a minimum of 60 days. The 60-day period is enough for banks to account for the cash savings.
Financial institutions rely on two bank statement cycles to account for money deposits.
Besides the mattress cash, you also have to document cash gifts from friends and family. Otherwise, they may be classified as undisclosed loans, significantly affecting your debt-to-income ratio.
Resist the urge to deposit large cash amounts in small amounts in the bank. This is because banks consider the small deposits as layered deposits.
If you have significant amounts of cash stashed somewhere, consider making large cash deposits with a trusted financial institution at least 69 days before starting the home buying process. You should also do this at least two months before signing the sale contract to allow the bank to do its due diligence.
FHA Loan Limits for Taylor County, Florida
One of the requirements when getting approved for an FHA-backed home loan is to meet FHA's county-specific loan limit. Your mortgage shouldn't exceed the maximum loan amount the FHA can insure.
As of 2022, the HUD (Department of Housing and Urban Development) will increase loan limits on FHA loans across 3,188 counties, with the loan limits in 45 counties staying the same. FHA loan limits for single-family home loans are capped at $970,800 in high-cost counties and $420,680 in low-cost counties.
The four pricing tiers used on FHA loan limits include a particular exception tier, a high-cost tier, a mid-range tier, and a standard tier. Most counties fall within the mid-range tier, meaning the cost of living there is moderate.
FHA loan limits in Florida vary depending on the cost of local housing and the housing types available for sale. In Taylor County, Florida, the loan limit on a single-family home is $420,680, while that of a duplex is $651,050. Loan limits for a triplex and four-plex in Taylor County, Florida are $538,650 and $809,150 respectively.
Top Five Fun Activities for Kids in Taylor County, Florida
Situated in the northern section of the Sunshine State, Taylor County boasts sandy beaches, relaxing rivers, a warm tropical climate, and a natural coastline.
You can take your kids to plenty of families and children-friendly spots across the county for fun and memorable times to engage in the following activities:
Learn About Florida's Forests at Forest Capital Museum
Not many people know that Florida's economy and history are deeply rooted in the forestry business. With more than 525,000 acres of land covered in forests, Taylor County was once proclaimed as the "Tree Capital of the South."
The Forest Capital Museum was established in 1968 to educate people about Taylor County, FL's magnificent forests and forest-related industries. The museum features an indoor spot where your kids can play basketball.
Enjoy Mexican Cuisine at Casa Grande Mexican Restaurant
Casa Grande Mexican Restaurant specializes in authentic Mexican dishes deeply rooted in central Mexico culture. Since its doors in the 1990s, the restaurant has served various foods for individuals, groups, families, or friends.
The restaurant lies close to the base of Rocky Mountain National Park, a great hiking destination. It boasts an outdoor seating arrangement with mouth-watering dining options and a full bar featuring an extensive collection of margaritas.
Bay Scalloping
Does the image of you and your kids heading out to the Gulf of Mexico through the Econfina River, Steinhatchee River, or Keaton Beach to watch seagulls fly and fish jump appear appealing? Taylor County, Florida is full of bay scalloping spots, which you can discover if you visit them often.
During the trip, you get to brush through the glassy waters, hoping to find scallops hiding underneath. You'll encounter different crustaceans all through the ride.
With the longest underdeveloped coastline, Taylor County, Florida, is highly appealing to visitors looking for bay scalloping activities.
Wildlife Watching at Saint Mark's National Wildlife Refuge
Encompassing nearly 70,000 acres of land, Saint Marks National Wildlife is among the biggest and oldest tracts of preserved land. Since its debut in the 1930s, the wildlife refuge features a variety of creeks, tidal rivers, marshes, and islands, which are common in coastal habitats. The most common recreational opportunities for families and children include photography and wildlife watching.
Saint Marks National Wildlife Refuge is home to a wide range of wading, predatory and migratory birds. You can also spot a bear, gators, and coyotes at the wildlife refuge.
Kayaking and Canoeing
One of the most fun ways of exploring the scenic parts of Taylor County, Florida, is by canoe or kayak. Since paddle trails are available for all ages, you can accompany your kids to any of the best kayaking and canoeing. Carry along your waterproof camera and binoculars to capture every moment of the adventure.
You and your family will encounter a coastal paddling adventure with excellent fishing and wildlife viewing opportunities. Camping is also allowed in some of the surrounding spaces.
The Bottom Line
In a nutshell, FHA loans are designed to increase homeownership opportunities for borrowers with fewer down payment savings and lower income and credit scores. You may want to take one if you are looking to finance a home with a mortgage boasting lower down payment options.
Like other counties in Florida, Taylor County, Florida, is a great place to buy a home and finance it with an FHA loan. The loan limits, income, credit score, and down payment requirements are more lenient, unlike other loans—best of luck finding an FHA-certified lender to consider you for the FHA loan.
