What You Need to Consider Before Applying for an FHA Loan in Florida
Make sure you meet the minimum requirements for the loan.
Set a budget, up to your credit scores, keep your debt-to-income ratio low, and prepare for the related fees.
Beware of the hidden charges in owning a home.
Prepare as much as 3% of your home cost for property taxes, maintenance costs, and utility bills.
Consult a professional mortgage broker so you can get the best value for your money.
FHA Loan Basics
The Federal Housing Administration (FHA) loan program is a type of loan or mortgage-backed by the government. The government agency serves as the insurer of this type of loan.
The underwriting requirements of these loans are very lenient. It allows borrowers who may not be eligible to avail of private conventional mortgages to be given the chance to own a new home.
For this reason, it is a great option for first-time homebuyers. In 2020, 83% of all home loans issued in the United States were for first-time homebuyers, according to the agency’s annual report.
Customers with low credit scores from foreclosures, credit cards, student loans, bankruptcy, and/or the likes might still be, in fact, qualified for an FHA loan.
Fannie Mae loans, by contrast, require higher minimum credit scores, 620-640 compared to FHA’s 500-580.
FHA Loans: Advantages vs. Disadvantages
Advantages
Disadvantages
Lower credit scores requirementYou only need a minimum credit score of 580.
Mortgage insurance premiums (MIPs) areinevitable.A low credit score equates to a higher chance of not paying off your debt. For FHA loans, a monthly mortgage payments are required.The rules were changed recently such that the MIP will have to be paid for the duration of the loan.Previously, once your equity reaches 22% or is paid for at least 5 years for a 30-year mortgage, you can wave paying for MIP.
Lower down payment restrictionsYou can pay as low as a 3.5% down payment with a credit score of 580.However, you need a 10% down payment if your credit score is in the range of 500 to 579.Traditional mortgage usually charges 20% on average.
Higher Debt-to-income ratiosFHA loans can allow you to have a 29% mortgage payment-to-income ratio or 41% total monthly debt-to-income ratio.Normally, these numbers are 28% and 36% maximum, respectively.
There are property requirements.There is a limit to the price of the property that you can avail.This ceiling changes depending on the property location.Also, the property needs to be your primary residence.Find other loan programs if you intend to purchase an investment property or a second house.
Jumpstart at building your equity. Earlier homeownership means you can put an end to renting a house sooner. This way you can build your savings and up your credit score.
The annual percentage rate (APR) can be higher than conventional mortgages.This is true even though it may seem that FHA loans have lower interest rates.
Some sellers prefer non-FHA borrowers.Because the housing market is very competitive, especially when the pandemic hit, they get a number of offers.Preference goes to those who have better credit scores and private mortgages.
Zero early payment penaltyShould you be able to pay off the home purchase price sooner, you will not be fined.
FHA Loan Requirements
You need to possess the following to be eligible for an FHA loan:
At least 18 years old.
Put down 10% or more if your FICO score is 500-579; if it’s 580 or above, put down 3.5%.
Have a minimum of two-year verifiable work histories.
Proof of income- Paychecks, federal tax returns, and bank statements.
The loan should finance only the purchase of a primary residence.
If the borrower has an existing FHA loan, it might still be possible to get another loan under certain circumstances. Consult your lender if you can qualify for this.
Ascertain that an FHA-approved appraiser has valued the property. Also, make sure it meets HUD standards.
No more than 31% of total monthly income should be devoted to front-end debt (mortgage payments).
A back-end debt ratio that is not 43% higher than your gross monthly income.
In some cases, FHA lenders permit a ratio up to 50 %.
After bankruptcy or foreclosure, wait for one to two years or three years, respectively, before trying for a loan.
But under justifiable circumstances, lenders may give you a pass on the waiting period.
How Does the FHA Loan Work?
Despite the fact that these loans are insured by the government, they are really underwritten and managed by non-bank financial institutions.
If the borrower defaults on the loan, the FHA financing will cover the majority of the losses of the mortgage lender.
This arrangement is also the reason why the FHA borrowers need to pay two types of mortgage insurance premiums:
Upfront mortgage insurance premium: 1.75% of the total amount needs to be paid.
When a loan is taken out, this might be included in the total amount.
Annual mortgage insurance premium: Rates may range from 0.45% to 1.050% depending on the length of the loan (15 years versus 30 years).
Additionally, it also considers the amount borrowed and the original loan-to-value ratio (LTV). This fee can be distributed as a monthly payment.
FHA lenders can’t charge more than 3% to 5% of the loan amount in closing costs.
The lender, seller, or builder is allowed to cover 6% of the closing cost for expenses for title search, credit report, or property appraisal.
2022 FHA Loan Limits for Florida Counties
Depending on the housing type (single-family home, duplex, tri-plex, or four-flex) and the cost of local housing, FHA has set a maximum loan amount.
And although there are online calculators available on certain websites, the computation is not always accurate.
It is best to consult a mortgage professional for an accurate assessment based on the requirements mentioned above.
When should you consider availing of an FHA loan?
If you have enough resources for the loan payment requirements. The most challenging to come up with is the large down payment.
Other than the money from a savings account, cash on hand with an accompanying statement of how it was obtained, stocks and bonds, gifted funds, and retirement accounts are also acceptable sources of down payment.
You may also want to check out the different payment assistance programs to help with your down payment.
Expert Tip:
Although it might be tempting to use family member gifts as the sole source for your down payment, put in your own funds. Doing otherwise is a red flag to lenders.
Not because you can afford to pay for the loan-related expenses, you should rush to the nearest lender of your choice.
Costs Most First-time Homeowners Should Know
Property taxes.
Urban developments with nice public amenities will incur higher property taxes.
Annual property taxes in Florida has a median value of 0.97% of the property market value.
Hence, it might not be a good option to choose high-cost areas like Monroe County.
Maintenance and repairs.
In general set aside 1% of the value of your house annually for landscaping, plumbing, garbage disposal, security system, and homeowner’s association dues.
Utility bills.
Expect to pay higher amounts when you live in your own home compared to when you were renting.
How to avail of an FHA loan?
When you find that you are capable to pay for all the costs, hidden and apparent, here’s what you need to do.
Get in touch with an FHA-approved lender.
You may choose a bank or private mortgage broker.
The latter is the best option because they have a larger network of FHA programs and lenders that can give you the best bang for your buck.
Process your pre-approval.
Although this is not necessary, it gives you the advantage of being perceived as a serious buyer. In turn, this can allow your loan application to go more smoothly.
Submit the application.
You need to prepare the complete documentation so that the loan officer of your chosen Florida FHA lender can initiate the application.
They will need the following:
social security number
tax returns
employment verification
credit report on all borrowers
appraisal documents
proof of previous rent/mortgage paid
Check out the HUD website for the complete guide to the required documents.
Once the loan is approved, and the borrower and seller reached an agreement on the purchase terms, the broker will create an escrow account to facilitate the payment until the total loan amount is paid.
FAQs
How much is a downpayment on an FHA loan in Florida?
In Florida, the down payment can be as low as 3.5% as long as your credit score is at least 580.
Not meeting, a credit score of 500 to 579, may require you to pay as much as 10% for your down payment.
How do FHA loans work in Florida? How easy is it to get approved for an FHA loan?
Definitely, it is easier to qualify for an FHA loan than a conventional loan.
The minimum requirements for an FHA loan are a 3.5% down payment, a 580 credit score, and a 43% debt-to-income ratio.
FHA home loans come in different types and can be availed for the purpose of home improvements.
Is it hard to get an FHA loan right now?
Because of the economic recession and the COVID-19 pandemic, FHA loans have become more restrictive.
Still, it is easier to get approved for an FHA loan application than a conventional mortgage. Do your best to keep your credit score high as well as your debt-to-income ratio.
Summary
FHA loans are easier to apply for compared to conventional mortgages.
However, you must bear in mind that there is still a minimum credit score, maximum debt-to-income ratio, and down payment to prepare for.
You need to select the location and type of housing carefully and check out the offers from different providers to maximize your loan.
You also need to prepare for the expenses of your new home such as the estate tax, maintenance costs, and utility bills.
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