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

The Federal Housing Administration backs FHA loans to ensure that low-to-moderate income people can access homeownership. Borrowers who might not qualify for conventional loans rely on FHA home loans to become homeowners. The lower down payment and credit score requirements make them more appealing than other mortgages.

FHA loans are available in 15-year and 30-year terms with fixed interest rates. FHA loan rates are currently at 4%, slightly lower than conventional ones.

This mortgage option is available for diverse classes of borrowers, including:

  • First-time homebuyers
  • Anyone who can't afford a significant down payment
  • People are rebuilding their credit
  • Seniors looking to get cash for their equity

What are FHA Home Loans?

The government developed the FHA loan program in the 1930s to combat mass foreclosures arising from the Great Depression. This program offered lenders adequate insurance that stimulated the housing market in turn.

FHA home loans help people with insufficient credit access mortgages. Many first-time home buyers find this loan option attractive due to its less stringent qualification requirements. FHA loans will also suit you if you can only afford a low down payment.

With a credit score of 580, you only need a 3.5% down payment to access the loan. However, you'll need to pay mortgage insurance premiums that ensure lenders don't suffer losses if you default.

FHA Loan Requirements

Most homebuyers assess the mortgage's down payment and credit score requirements when applying for mortgages. Typically, if you can only raise a 3.5% down payment, you'll need a credit score of 580 to qualify for the loan.

Also, you could still qualify for the loan if your credit score is between 500-579. In this case, you'll need to pay a minimum down payment of 10%.

Your credit score will vary depending on:

  • Your credit type
  • How promptly do you pay your bills
  • Credit utilization
  • The amount you owe on your credit cards

Besides the credit score and down payment, the other top FHA loan requirements include:

Property Requirements

Before qualifying for the FHA loan, your lender must guarantee that the home will be your primary residence. You won't qualify for the loan if you intend to rent out the property or use the money to purchase investment properties.

Your lender will also require an appraisal from an approved FHA appraiser. This appraisal aims to ensure that the home doesn't exceed FHA home limits. Besides, the house should meet set property standards for you to qualify for the loan.

Employment History

Your lender will require you to demonstrate that you've had a steady employment history. Working for the same employer consistently indicates that you're less likely to default on your loan. A stable employment history also demonstrates that you have a reliable income source to complete the mortgage payments.

You can verify your employment with documents, including pay stubs, bank statements, and federal tax returns.

Debt-to-Income Ratio

Your debt-to-income ratio indicates the percentage of your income used to pay existing debts. You can compute this ratio by dividing your debt payments by your gross income. When considering your debt, including any pending student loans and car loans.

Typically, a lower DTI is good when applying for FHA home loans. In these instances, your lender views you as a less risky borrower. The FHA will usually require your DTI to be less than 50 for you to qualify for the loan.

Your total monthly debts should not exceed 50% of your income. However, you can still be eligible with a higher debt-to-income ratio if you have a higher credit score.

Diverse FHA Loan Options

The FHA offers multiple loan options designed to meet specific borrower needs. The different FHA home loan options are ideal for borrowers in various circumstances.

Here's more information regarding the available FHA home loan options.

Basic Home Mortgage Loan 203(b)

This loan option has fixed and adjustable rates ideal for your unique needs. The low minimum down payment makes it attractive for many home buyers. You could use this loan to either purchase or refinance your primary residence.

However, if your house needs more than $5,000 in repairs, you'll need to look at other options.

203(k) Rehab Mortgage

Does your new home require renovations to make it more habitable? Consider the 203(k) rehab mortgage. With this loan, you'll need to complete repairs within six months. Also, you'll need a qualified professional to execute the repairs.

Choose between the standard and limited loans, depending on your renovation needs. Standard rehab loans usually give you more freedom to repair the property. This loan option will serve you well if your home requires major structural repairs that exceed $35,000.

You can use the standard 203(k) rehab mortgage to complete diverse repair projects, including:

  • Redoing groundwork and landscaping
  • Overhauling your plumbing and waste systems
  • Installing new floors and roofs
  • Bathroom and kitchen remodeling
  • Installing heat and air-conditioning systems

On the other hand, limited rehab loans require less documentation and are suitable for less-involving home repairs. This loan offers a maximum of $35,000 for renovations. The limited loan will be ideal for:

  • Fixing health or safety hazards
  • Repairing gutters and downspouts

Remember that the FHA 203(k) loans won't cover luxurious or extravagant renovations. You may not use this loan for renovations like new swimming pools, gazebos, or tennis courts.

Energy Efficient Mortgage

For energy-efficient upgrades during a home purchase, go with the energy-efficient mortgage. This loan option usually encourages energy efficiency among home buyers. You can use the money to either cover new energy improvement costs or buy an energy-efficient home.

This mortgage also helps you finance cost-effective, energy-saving measures. Before the FHA approves this loan, you'll need a home energy rate to perform a home energy assessment.

From this assessment, your lender will estimate the monthly energy savings and the value you'll get from the energy efficiency measures.

Typical energy-efficient improvements include:

  • Assorted heating and cooling systems
  • Installing home insulation
  • Making select roofing improvements
  • Installing furnaces and heat pumps
  • Water heater installations
  • Duct system repairs and installations

Ultimately, these improvements will lower your energy bills and reduce your annual expenses. Also, you'll be in the perfect position to minimize your overall energy consumption.

The FHA encourages this loan option as it ensures that your household activities have less impact on the environment.

FHA Rate/Term Refinances

Rate refinances help you trade your existing mortgage for one with a different interest rate and lower monthly payments. The FHA rate/term refinance option has less stringent credit requirements.

Leverage this loan option when lowering your rate or changing existing terms. With this refinance, you can significantly shorten your loan term and save on interest.

Mortgage interest rates change frequently. Refinancing makes sense if rates are better now than when you took the loan. Also, this refinances lets you switch your loan from an adjustable-rate mortgage to a fixed-rate one when rates go down.

Cash-Out Refinance

Are you short on cash but with enough equity in your home? A cash-out refinance might be suitable. This loan option gives you money, provided you remain with at least 15% home equity.

To qualify for this loan, you'll need to meet specific eligibility requirements, including:

  • The home in question should be your principal residence

  • You must have owned and occupied the house for no less than 12 months

  • You need to be up to date with your last 12-month payments

  • Your loan-to-value ratio should not exceed 80%

The FHA cash-out refinance offers considerably lower interest rates than what you'd get on your credit cards. Also, you might get more money than you'd get through a personal loan, given that you're borrowing against your home's equity.

FHA Streamline

Opt for an FHA streamline loan if you need additional benefits on your existing loan. With this loan option, you can refinance at a lower rate while you owe more than your home's worth.

Given that you'll have an existing FHA loan, you won't have to provide complete documentation for this loan. Most lenders will request fewer employment verification documents. Also, you'll need to present fewer documents for your income and assets.

FHA Loan Limit in Walton County, Florida

FHA home limits usually vary with the number of living units and your home's location. FHA loans are only available when you purchase 1 to 4 living-unit properties. You won't qualify for FHA or conventional loans if the property has more than four units.

In Walton County, you can get up to $539,350 for one living-unit home. However, if you opt for a home with four living units, you can get up to $1,037,200 to finance your preferred home.

The word FHA is written on a wooden cubes

FHA Loans Application

While the FHA insures FHA home loans, you'll need to apply for them from FHA-approved lenders. You can get loans from independent mortgage firms, credit unions, or community banks.

Here are a few steps to consider when applying for a loan.

  • Know your budget
  • Compile your documents
  • Compare available offers

Assess your financial position to know how much you can afford to spend on the home.

Getting a pre-approval ensures that you have a smooth home purchase process. This process reveals your financial information and helps you know whether or not you'll get approved for the loan. Typically, your lender will assess documents related to assets, debt, employment, and credit.

Such information will determine your approval status and how much you can get from the FHA home loan. Upon pre-approval, you can scout for a home with a clear idea about your price range and chances of getting financing.

Ensure that you present your pre-approval letter when making an offer for the home. Generally, homeowners prefer offers with pre-approvals as they are less likely to fall through.

During pre-approval, you'll need to provide comprehensive documentation, including:

  • Your social security card
  • Pay stubs
  • W-2 statements
  • Tax returns
  • Employment verification letter
  • Documents related to other assets

Down payment Assistance Program

If you fail to raise the required down payment amount, you could leverage Florida Housing's down payment assistance programs. This second mortgage could also help you clear your closing costs. The specific assistance programs include:

  • The Florida Assist (FL Assist) - This non-forgivable program offers an additional $10,000 that you could use for your down payment and closing costs. Once you refinance the loan, you'll need to pay this amount in full.

  • The Florida Homeownership Loan Program - This second mortgage also offers $10,000 to cater to your down payment. The amount becomes payable when you cease to occupy the property, sell it, satisfy your first mortgage, or refinance the home.

Once you get this amount, ensure that you open a bank account where you can keep the money while scouting for your home. Don't be tempted to store your cash under the mattress as some borrowers would.

Benefits of FHA Home Loans

FHA home loans offer multiple benefits for many borrowers. Top on that list is the minor down payment requirement. Unlike conventional loans that might require a 20% down payment, you can qualify for FHA home loans with a 3.5% down payment.

Besides, FHA loans have less stringent credit requirements, meaning you can qualify if you'd had negative items like foreclosures in your credit history.

Here's a look at the other top benefits.

Shorter Bankruptcy and Foreclosure Waiting Period

FHA loans are available for anyone who's previously faced bankruptcy and is rebuilding their credit. Unlike other mortgages that might require you to wait longer, you can qualify for FHA home loans two years after bankruptcy.

If you've had a foreclosure history, you can get FHA loans after three years.

Lower Closing Costs

Closing costs usually go towards appraisal, title search, or credit report fees. FHA lenders will only charge you 3 to 5 percent of the loan as closing costs. Besides, your seller can pay up to 6% of the closing costs.

Competitive Interest Rates

FHA home loans offer competitive interest rates compared to conventional loans. Government-backing on these loans decreases your risk level, earning you lower interest rates.

FHA home loan interest rates are dependent on multiple factors, including:

  • Your income
  • Credit score
  • Down payment amount
  • DTI ratio
  • The amount you borrow

Diverse Loan Options

You can settle on a mortgage option that best suits your unique situation. You could purchase, build, or renovate your preferred house with FHA loans. All these options are available with a low down payment.

No Penalties for Early Payoff

Unlike typical mortgages, FHA loans do not have early payoff penalties. Essentially, you can clear your mortgage payment once you raise enough money.

FHA Mortgage Insurance

Despite its multiple benefits, borrowers must pay the FHA mortgage insurance. This insurance reduces the risk of lender's loss when you default.

FHA home loans require you to pay two mortgage insurance premiums:

  • Upfront mortgage insurance - Typically, you'll pay 1.75 percent of the loan amount when you get the loan. Alternatively, you could roll this amount into your overall loan amount.

  • Annual mortgage insurance - Depending on the loan term, you'll pay between 0.45 to 1.05 percent of your loan. The yearly mortgage premium depends on the loan amount and your initial loan-to-value ratio. Often you'll spend this premium monthly.

If you pay a 10 percent down payment and remain current with your mortgage payments, the FHA will cancel these insurance premiums after 11 years. However, if your initial LTV ratio exceeds 90%, you'll carry these premiums throughout the loan's life.

Activities for Kids in Walton County, Florida

  • Santa Rosa Beach Excursions - Rent a golf cart or cruiser bike and explore the beautiful beach. The beautiful waves complement this perfect beach with beautiful white sand. Your kids will enjoy the ice cream, snow cones, and shakes available at the Blue Mountain Creamery.

  • Visit Fusion Art Glass Gallery - Enjoy quality craftsmanship in the curated collection representing North American art glass. Your kids can find something for themselves from the unique selection of jewelry.

  • Explore the Deep Lake State Park - This beautiful and peaceful Lake offers the perfect spot to relax with your family. Access the beach via the ramp and rest on the picnic tables.

Family Activities in Walton County, Florida

  • Visit the Ft. Walton Skating Center - Make some beautiful memories with your family at this skating center. Rent skates in the nearby skate shop and have unmatched fun in this location.

  • Explore the Okaloosa Island Boardwalk - Dine, shop, and enjoy great entertainment at this Gulfside boardwalk. Let your young ones enjoy some time at the sand volleyball court and playground.

  • Eat at La Terrazza Mexican Restaurant - Do you want to try some Hispanic cuisines? Make your way to the La Terraza restaurant for authentic Mexican food. The delicious dishes and fantastic Prosecco will ensure you keep returning for more.

Consider FHA Home Loans

When you're ready to settle down, consider applying for this loan option. FHA loans ensure that low-to-moderate income people own their homes. Their less stringent qualification requirements ease your goal of home ownership.

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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