The FHA Purchase Loan Program for Your City, Your State
FHA's home loan program for Your City, Your State is allowing people to buy homes with low down payments—and, typically, lower rates and fees.
This is possible because FHA's mortgage insurance reduces the risk for lenders. They can lend to more people, knowing that the federal government will back up their loans if the borrowers default. This protects lenders while helping first-time buyers in Your City, Your State become homeowners.
Benefits of the FHA Your City, Your State Home Loan Program
Low Down Payment. Your down payment with an FHA loan can be as low as 3.5 percent. And you can use gift funds from a charity, employer or a family member.
Lenient Credit Requirements. You don't perfect credit to qualify for an FHA loan. You can even qualify after a foreclosure, bankruptcy or short sale—after as little as one year.
Competitive Rates. FHA loans include an insurance premium, but they're still competitive with general market rates.
Help with Hardships. FHA has loan programs for people who've experienced financial hardship. And if you have trouble after you buy with an FHA loan, there are options to help you keep your home.
About the FHA
The Federal Housing Administration (FHA) was established as part of the National Housing Act of 1934, to help stabilize the housing market during the peak of the Great Depression. Back then, foreclosures had skyrocketed and the banking system was near collapse. The FHA was part of the effort to reverse that trend. In 1965, the FHA was folded into the department of Housing and Urban Development (HUD).
Since its inception, the FHA has insured millions of home mortgages. With the return of a buyer's market in 2010, FHA's share of home mortgages rose to 30 percent.
FHA Eligibility Requirements
Here's what you'll need to be eligible for an FHA loan in Your City, Your State:
- A credit score of at least 530 (640 is preferred)
- 2 years of steady employment/income
- No bankruptcy or foreclosure within the past 12 months
- The home you're buying in Your City, Your State must be your primary residence
Remember—if you're applying with a co-signer, all applicants will have their credit checked.
FHA-Approved Appraisal Required
Before approving your FHA loan, your lender will order an appraisal on the property. This is to make sure the home is really worth what you're offering to pay. The appraisal will also make note of any repair or maintenance issues. This protects the lender—but it also benefits you. You don't want to buy a home with hidden defects.
The typical maximum LTV for an FHA purchase loan is 96.5 percent. That leaves just 3.5 percent for you to provide as a down payment. If the property appraises for less than the sale price, you'll need to include the difference in your down payment.
Debt-to-Income Ratio Requirements
Your debt-to-income ratio (DTI) is calculated in two ways.
Your front-end ratio is the percentage of your monthly income that you pay for housing. For instance, if your new mortgage payment, including principal, interest, taxes, and insurance (PITI) is $1,000 and your gross monthly income is $3,000, your front-end ratio would be 33 percent.
Your back-end ratio is the total of all your monthly debt obligations as a percentage of your gross monthly income. So, if your monthly income is $4,000 and you pay $2,000 in debt payments, your back-end ratio is 50 percent.
FHA guidelines in Your City, Your State establish the maximum debt-to-income ratio. The maximum back-end ratio is usually 54.99 percent. Many lenders set the maximum at 50 percent or even 45 percent.
Your lender will want to see your most recent pay stubs, W-2's for the past two years, and tax returns. If you have been at your job for less than two years the lender may ask for additional documentation of your income. And if you're self-employed you'll be asked for a profit and loss statement.
Eligible Property Types in Your City, Your State
- Single-family houses
- 2 to 4-unit residences (when one unit is owner-occupied)
- Manufactured homes (mobile homes)
FHA loans are for owner-occupied properties. Second homes and investment properties don't qualify.
However, a second home could qualify if the first home is not already a primary residence and doesn't have an FHA loan.
The Benefits of a Low Down Payment
The low down payment required on FHA loans makes them attractive for many buyers.
The minimum down payment for an FHA mortgage is as low as 3.5 percent. By contrast, many conventional lenders require down payments as high as 20 percent.
For example: On a $300,000 home, your FHA down payment required would then be $10,500 at a 3.5 percent. A 20 percent down payment would be $60,000—far beyond the reach of most average homebuyers.
Even at a mere 5 percent, the down payment would be $15,000.
The value of the FHA low-down payment program becomes obvious.
Find Out Now How an FHA Home Mortgage Can Benefit You!