The government backed FHA home loan is guaranteed by the United States Federal Housing Administration (FHA) and provides a number of home ownership opportunities with little down payment required. Available in all 50 states, the FHA is the largest government insurer of home loans in the US today. The government backed FHA mortgage program is one of the last remaining home loan programs that allow home buyers to purchase a home with little money down. Below we will discuss some Florida FHA Loan Details and what home buyers need to know.
What is an FHA Loan?
An FHA loan is a mortgage loan that is insured by the Federal Housing Administration (FHA). Essentially, the federal government insures loans for FHA-approved lenders in order to reduce their risk of loss if a borrower defaults on their mortgage payments.
The FHA program was created in response to the rash of foreclosures and defaults that happened in 1930s; to provide mortgage lenders with adequate insurance; and to help stimulate the housing market by making loans accessible and affordable. Nowadays, FHA loans are very popular, especially with first-time home buyers around populated locations like Tampa, Orlando, Jacksonville, Miami, St. Petersburg, Lakeland, Ocala, Gainesville, Daytona, Tallahassee and Pensacola.
What Are the Benefits of FHA Loans?
Typically an FHA loan is one of the easiest types of mortgage loans to qualify for because it requires a low down payment and you can have less-than-perfect credit. An FHA down payment of 3.5% is required. Borrowers who cannot afford a traditional down payment of 20 percent or can’t get approved for private mortgage insurance should look into whether an FHA loan is the best option for their personal scenario. Another advantage of an FHA loan is that it can be assumable, which means if you want to sell your home, the buyer can “assume” the loan you have. People who have low or bad credit, have undergone a bankruptcy or have been foreclosed upon may be able to still qualify for an FHA loan.
What Are the Disadvantages of an FHA Mortgage?
Higher mortgage insurance – or PMI. Because an FHA loan does not have the strict standards of a conventional loan, it requires two kinds of mortgage insurance premiums: one is paid in full upfront – or, it can be financed into the mortgage – and the other is a monthly payment. Also, FHA loans require that the house meet certain conditions and must be appraised by an FHA-approved appraiser.
Upfront mortgage insurance premium (MIP) — Appropriately named, this is an upfront monthly premium payment, which means borrowers will pay a premium of 1.75% of the home loan, regardless of their credit score. Example: $100,000 loan x 1.75% = $1,750. This sum can be paid upfront at closing as part of the settlement charges or can be rolled into the mortgage. The upfront MIP is normally rolled into the borrower new loan amount.
Annual MIP (charged monthly) —Called an annual premium, most people also know this term as “PMI” this is actually a monthly charge that will be figured into your mortgage payment. It is based on a borrower’s loan-to-value (LTV) ratio, loan size, and length of loan. There are different Annual MIP values for loans with a term greater than 15 years and loans with a term of less than or equal to 15 years. Loans with a term of greater than 15 Years and Loan amount < or =$625,000. FHA home loans require a one-time upfront mortgage insurance premium (UFMIP) of 1.75% that is rolled into the borrowers loan. In addition to this, FHA home loans have a monthly premium as well. It’s important not to confuse the one-time upfront premium (UFMIP) and the monthly MIP.
The monthly premium depends on the loan terms (30 yr, 15 yr, etc) and down payment you choose, please see the chart below –
|30, 25, or 20 Year Fix Rate FHA|
|Loan to Value||Annual Premium|
|Over 95%||85 bps of loan amount|
|Under 95%||80 bps of loan amount|
Example of the monthly mortgage insurance costs based on the chart above:
Sales price of your new home = $100,000
You have decided to use the FHA 30 year fix rate with a 3.5% down payment = $3,500
Loan amount = $96,500
Based on this scenario, your FHA monthly mortgage insurance costs (PMI) would be:
$96,500 x .085 = $1,302.75. Now divide $820.25 by 12 = $68.35 your monthly insurance costs.
The table below shows the previous and the new duration of annual MIP by amortization term and LTV ratio at origination: This is the time you would be eligible to cancel and drop the monthly MIP.
|≤ 15 yrs||≤ 78||No annual MIP||11 years|
|≤ 15 yrs||> 78 – 90.00||Cancelled at 78% LTV||11 years|
|≤ 15 yrs||> 90.00||Cancelled at 78% LTV||Loan term|
|> 15 yrs||≤ 78||5 years||11 years|
|> 15 yrs||> 78 – 90.00||Cancelled at 78% LTV & 5 yrs||11 years|
|> 15 yrs||> 90.00||Cancelled at 78% LTV & 5 yrs||Loan term|
Example for calculating the one-time 1.75% upfront Mortgage Insurance Premiums (UFMIP):
Sales price of your new home = $100,000
Min. FHA down payment required is 3.5% = $3,500
Loan amount = $96,500
One time upfront FHA mortgage insurance premium of 1.75% ($1,688.75) added to your loan:
$96,500 + $1,688.75 = $98,188.75 your new final adjusted loan amount.
FHA Home Financing Requirements
- Minimum credit score of 620 for maximum financing with a minimum down payment of 3.5 percent.
- Minimum credit score of 600 for maximum LTV of 90 percent with a minimum down payment of 10 percent. FHA-qualified lenders will use a case-by-case basis to determine an applicants’ credit worthiness.
- Typically you must be three years out of bankruptcy and have re-established good credit. Exceptions can be made if you are out of bankruptcy for more than one year if there were extenuating circumstances beyond your control that caused the bankruptcy and you’ve managed your money in a responsible manner.
- Typically you must be four year out of foreclosure and have re-established good credit. Exceptions can be made if there were extenuating circumstances and you’ve improved your credit. If you were unable to sell your home because you had to move to a new area, this does not qualify as an exception to the three-year foreclosure guideline.
- Must have a valid Social Security number, lawful residency in the U.S. and be of legal age to sign a mortgage in your state
- Must make a minimum down payment of 3.5 percent. The money can be gifted by a family member.
- Must have a steady employment history or worked for the same employer for the past two years.
- New FHA loans are only available for primary residence occupancy
- Must have a property appraisal from a FHA-approved appraiser
- Your front-end ratio (mortgage payment plus HOA fees, property taxes, mortgage insurance, home insurance) needs to be less than 31 percent of your gross income. You may be able to get approved with as high a percentage as 48 percent. Your lender will be required to provide justification as to why they believe the mortgage presents an acceptable risk. The lender must include any compensating factors used for loan approval.
- The applicants back-end ratio (mortgage plus all your monthly debt, i.e., credit card payment, car payment, student loans, etc.) must be less than 43% of your gross income, typically. You may be able to get approved with as high a percentage as 56.99 percent. Your lender will be required to provide justification as to why they believe the mortgage presents an acceptable risk. The lender must include any compensating factors used for loan approval.
Property needs to meet HUD standards: Any single family home, town home, FHA approved condo is ok, regardless of the home seller. However, FHA requires that a property meet certain minimum standards at appraisal. If the home you are purchasing does not meet these standards and a seller will not agree to the required repairs, your only option is to pay for the required repairs at closing (to be held in escrow until the repairs are complete).
Keep current on the premium costs for FHA loans by visiting the U.S. Department of Housing and Urban Development (HUD).
Florida FHA Loan Limits
There are maximum mortgage limits for FHA loans that vary by state and county. Please see the 2020 FHA loan limits here. Conventional financing for loans that can be bought by Fannie Mae or Freddie Mac are currently at $510,400
How Do I Get My FHA Started?
Contact FHA Mortgage Source by calling ph: 800-743-7556 – 7 days a week. Or visit www.FhaMortgageSource.com
Florida: Tampa, Orlando, Jacksonville, Miami, St. Petersburg, Lakeland, Ocala, Gainesville, Tallahassee, Pensacola.