FHA Loans

  FHA loans are backed by the Federal Housing Administration, an agency under the jurisdiction of the Department of Housing and Urban Development. FHA loans are insured by the FHA, which simply means that this organization protects your lender against loss if you default on your loan.

FHA loans are available with low down payment options and lower minimum credit score limits, but you’ll also have to pay mortgage insurance.

** Credit score requirements are lower compared to other loans.

** Your lender can accept a lower down payment.

** You could still qualify for an FHA loan if you have a bankruptcy or other financial issues in your history.

** FHA closing costs can often be rolled into your loan.

There are certain requirements borrowers must meet to qualify for a FHA loan, including:

The home you consider must be appraised by an FHA-approved appraiser.

You can only get a new FHA loan if the home you consider will be your primary residence, which means that it can’t be an investment property or second home.

You must occupy the property within 60 days of closing.

An inspection must occur, and the inspection must report whether the property meets minimum property standards

There are a few more specific conditions to qualify, including a down payment amount, mortgage insurance, credit score, loan limits and income requirements. 

Your down payment is a percentage of the purchase price of a home, and is the upfront amount you put down for that home. The minimum down payment you’re able to make on an FHA loan is directly linked to your credit score. Your credit score is a number ranging from 300 to 850 that’s used to indicate your creditworthiness.

An FHA loan requires a minimum 3.5% down payment for credit scores of 580 and higher. If you can make a 10% down payment, your credit score can be in the 500 – 579 range. Snohomish Mortgage requires a minimum credit score of 580 for FHA loans. 

You must pay a mortgage insurance premium (MIP) for an FHA loan. Mortgage insurance is put into place to insure your FHA lender against losses if you default on your loan.

In most cases, you pay mortgage insurance for the life of an FHA loan (unless you made a down payment of at least 10%, in which case, MIP would be on the loan for 11 years). FHA loan mortgage insurance is assessed in a couple of different ways. First, an upfront mortgage premium is charged, which normally amounts to 1.75% of your base loan amount.

FHA borrowers also pay an annual mortgage insurance premium, which is based on the term (length) of your mortgage, your loan to value ( LTV) , your total mortgage amount and the size of your down payment. Annual MIP payments run approximately 0.45% – 1.05% of the base loan amount.

There are a lot of factors that determine your credit score, including:

** The type of credit you have (whether you have credit cards, loans, etc.)

** Credit utilization, which is simply how much credit you use

** Whether you pay your bills on time

** The amount you owe on your credit cards

** How much new and recent credit you’ve taken on

If you have a higher score, you might be able to qualify with a higher debt to income ratio, or DTI. DTI refers to the percentage of your monthly gross income that goes toward paying debts. Your DTI is your total monthly debt payments divided by your monthly gross income (your monthly income before taxes). This figure is expressed as a percentage.

To determine your own DTI ratio, divide your debts (student loans, car loan, etc.) by your monthly gross income. For example, if your debts, which include your student loans and car loan, reach $2,000 per month and your income is $8,000 per month, your DTI is 25%.

The lower your DTI, the better off you’ll be. If you do happen to have a higher DTI, you could still qualify for an FHA loan if you have a higher credit score.

If you’re ready to get rolling, you can start your application now or call 206.335.7334 to discuss your particular needs.