FHA Loan
An FHA loan may make it easier for you to afford to purchase a home. With more flexible requirements, you can use an FHA loan to buy a home with lower credit and a smaller down payment, while still aligning with your other financial goals.
Benefits of an FHA Purchase Loan
River City Mortgage can help you decide what loan can help you afford your home. The FHA loan program is backed by the Federal Housing Administration (FHA), making approvals easier with lower qualification requirements and flexible financing options.
Get Approved for an FHA Loan
Minimal down payment required
Credit score requirements are lower
Less strict qualification requirements
Options for no closing costs
Gift down payments are allowed
How It Works
With an FHA loan, you have similar choices as you would with a conventional mortgage. However, there are additional options that make an FHA loan a more flexible option, depending on your financial needs.
The unique benefits of an FHA loan come with the more lenient requirements backed by the FHA, which may make it easier for more people to qualify for and afford a mortgage.
To qualify you’ll need the following:
- Documentation of consistent income
- Employment verification and history
- Downpayment of 3.5% depending on your credit score
- The debt-to-income ratio at or below 50% as qualified through automated underwriting
- For the home you’re purchasing to be your primary residence
- For the home to meet minimum property standards
- To move into the home within 60 days of closing
- No foreclosure within the last three years
To offer these more lenient requirements, FHA loans do require that home buyers pay mortgage insurance premiums (MIP). This includes an upfront MIP that is financed at closing and an annual MIP, which is paid monthly, becoming less expensive every year for the lifetime of your loan. These premiums can be reduced, for instance, if you have a larger down payment or shorter loan term.
Is an FHA Loan Right for You?
These answers to home buyer’s commonly asked questions may help guide you. To take the next step, our loan officers can help you choose the most affordable loan for your home.
Is an FHA loan better for me than a conventional loan?
FHA loans make it more affordable for those with lower credit scores to finance a home while still being offered competitive interest rates and options for low down payment amounts. Conventional loans also offer low down payment amounts, but these are only available to those with higher credit scores and often cause a borrower’s interest rate to increase. Similar to how an FHA loan requires the payment of mortgage insurance premiums, conventional mortgages require private mortgage insurance if a down payment is less than 20% of the loan amount. This typically adds a cost of 0.5% to 1% of the loan amount per year.
What costs are involved in closing an FHA loan?
Beyond the amount of your mortgage that will finance your home, there are additional fees and costs. The closing costs cover expenses such as loan origination fees, title insurance, and an appraisal. They typically range between 1% to 3% of your loan amount.
As mentioned above, FHA loans also require mortgage insurance premiums (MIP). The MIP on a new FHA loan lasts for 11 years if you have a 10% down payment or equity in the property on a refinance. If your down payment or equity is less than 10%, the MIP lasts for the life of the loan. MIP reduces slightly each year as the loan gets paid down.
The upfront MIP is typically 1.75% of your loan amount.
The annual MIP is determined based on your down payment amount, the term length and amount of your mortgage, as well as your loan-to-value ratio. This can be between 0.45% to 1.05% of your loan amount.
What are the minimum property standards a home must meet for an FHA loan?
The FHA sets minimum property standards that each home must meet to ensure that the property is a good investment for the home buyer, the lender, and the FHA. To determine if a home meets these standards, an inspection will be required.
These standards relate to safety, security, and soundness to ensure that the home will not negatively affect the health, safety, or security of its residents, and that it holds its structural integrity.
Factors considered could include the condition of a house’s roof, electrical, and heating for example but do not include cosmetic features.
If I’ve experienced bankruptcy in the past can I still qualify for an FHA loan?
Although there are several factors that determine if you can be approved for an FHA loan, those who have experienced bankruptcy may qualify for an FHA loan if it has been two years from the discharge date of a Chapter 7 bankruptcy or two years from the filing date for a Chapter 13 bankruptcy.
Can I refinance an FHA loan for a new interest rate and terms?
Yes, the FHA Streamline refinance makes it quick and easy for a homeowner with an FHA loan to refinance their loan in an effort to lower their interest rate, adjust their term, or switch whether they have a fixed or adjustable-rate mortgage. The streamlined refinance requires minimal documentation to qualify and doesn’t require an appraisal.