The FHA Home Loan program continues to be one of the most popular home loan programs. It can be used to purchase a home with as little as a 3.5% down payment, is more flexible on credit standards than a conventional and also provides great options for refinancing when you don’t have a lot of equity.
In this article, we will explore some of the many features and benefits of the FHA home loan program based on the latest standards.
The FHA home loan program has a minimum 3.5% down payment. At a 5% down payment, your mortgage insurance costs decrease slightly, but all FHA loans have monthly mortgage insurance. In addition, the entire down payment on an FHA loan may be gifted on an FHA loan.
While if you refinance, you can also do so with as little as 3.5% in equity or even with no equity, through an FHA streamline refinance.
On an FHA loan, there is not a set minimum credit score to obtain a loan, but most lenders impose a 580 minimum credit score requirement.
As with all loan programs, the higher your credit score is, the lower your interest rate will be, but the FHA home loan program is the most forgiving when it comes to lower credit scores.
Home Loan Limits
The current FHA loan limit is $294,515 in Maricopa and Pinal Counties in Arizona. Meaning that this the maximum loan size you can obtain using an FHA loan. If you are looking to purchase a home with the minimum down payment on an FHA loan of 3.5%, that equates to roughly a maximum purchase price of $305,000.
The FHA home loan program can only be used to purchase or refinance a primary home. However, if you currently have an FHA home loan on a property you no longer live in, you still may able to complete an FHA streamline refinance. In addition, you can use the FHA home loan program to purchase any single family home or townhome or any FHA approved condo.
FHA Home loans have mortgage insurance associated with them upon the initial purchase of a loan and over the life of the loan as well. The current upfront mortgage insurance associated with an FHA loan is 1.75%. That amount can be rolled into your initial loan amount or paid in cash when you take out an FHA loan. In addition, there is also monthly mortgage insurance on an FHA loan, which varies by down payment and is based on an annual percentage. On a 30 year fixed FHA loan, the annual FHA mortgage insurance is .85% with a 3.5% down payment and .80% with a 5% or greater down payment.
Waiting Periods After Foreclosure or Bankruptcy
To obtain an FHA loan, you must wait three years after the completion of a short sale or foreclosure, to obtain a new loan. In addition, there is also a two year waiting period after the discharge of a chapter 7 or 11 bankruptcy to obtain a new home loan.
Debt To Income Ratios
On an FHA loan, the programs basic guide says that your monthly mortgage payments should not exceed 29% of your monthly income and all of your monthly debts combined (including your mortgage payment) should not exceed 41% of your monthly income. However, with compensating factors, such as a steady job history, assets or good credit, it is not uncommon for higher debt to income ratios to be approved for FHA loans, often up to a 50% debt to income ratio or higher.
These are some of the basics you need to know about the FHA home loan program, but of course everyone’s individual situation is unique and it is always best to speak with a licensed lender, such as Strategic Mortgage and explore all available options, for your specific situation.
For more information on current home loan programs and options for existing and potential home owners, please contact Bill Kamboukos of Strategic Mortgage at (480) 219-3682 or by emailing: firstname.lastname@example.org or online at www.strategicmtgaz.com
Strategic Mortgage, LLC - NMLS#158804- Equal Housing Lender – AZBK#0909514
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