FHA Loans: How they can help you buy a home in 2024

There are many different options available for home buyers in 2024–this guide will focus on the FHA loan. Loans insured by the Federal Housing Administration (FHA) are specifically designed to help first-time buyers and middle income buyers, so it’s important to evaluate them alongside your other loan options.

Getting your foot on the property ladder can seem like a daunting task. Saving for a hefty down payment and qualifying for a traditional mortgage can feel out of reach for many first-time homebuyers. This is where FHA loans come in – a government-backed mortgage program designed to make homeownership more accessible.

This guide will equip you with all the essential information about FHA loans, from their core benefits to eligibility requirements and the mortgage process itself.

What is an FHA loan?

The Federal Housing Administration (FHA), a department within the U.S. Department of Housing and Urban Development (HUD), doesn’t directly lend money. Instead, it insures mortgages issued by FHA-approved lenders.

This mortgage insurance program protects lenders against defaults, allowing them to offer more favorable terms to borrowers. These terms can include lower down payment amounts, more flexible underwriting and lower rates.

What are the features of FHA loans?

Here’s what makes FHA loans distinct:

Lower minimum down payment: Compared to conventional loans that typically require a 20% down payment, FHA loans allow you to purchase a home with a minimum down payment of 3.5%. This significantly reduces the upfront financial burden for first-time homebuyers.

Flexible credit score requirements: While good credit is always preferred, FHA loans cater to borrowers with lower credit scores. The minimum credit score requirement for the down payment is typically 580, with a higher score (around 640) needed for down payment lower than 10%.

What FHA loan products are there?

The FHA loan program offers a variety of mortgage products to cater to different needs and purchase scenarios:

• FHA Purchase Loan: The most common FHA loan type is used to finance the purchase of a primary residence.
• FHA Streamline Refinance: An easier and faster refinance option for existing FHA loans.
• FHA 203(k) Rehabilitation Loan: Allows you to finance the purchase and renovation of a fixer-upper.
• FHA Energy Efficient Mortgage: Provides incentives for purchasing or making energy-efficient improvements to a home.

It’s important to discuss your specific needs and goals with a qualified mortgage professional to determine the most suitable FHA loan product for you. You can use Stairs Financial to compare FHA and other loan options and connect with a loan officer today.

What are the FHA loan requirements?

To qualify for an FHA loan, you’ll need to meet specific requirements set by the FHA and your chosen lender. Here are some general guidelines:

• Minimum credit score: As mentioned earlier, the minimum credit score typically ranges from 580 to 640, depending on your down payment.
• Debt-to-income ratio (DTI): This ratio compares your monthly debt obligations to your gross monthly income. FHA lenders have specific DTI limits you need to meet.
• Minimum down payment: The minimum down payment for an FHA loan is 3.5%, but a higher down payment can improve your chances of approval and potentially lower your mortgage insurance premiums.
• Employment history: You’ll need to demonstrate stable employment for at least two years.
• FHA appraisal: The property you’re purchasing needs to meet FHA property standards as determined by a qualified appraiser.

These are general guidelines, and specific requirements may vary depending on your lender and individual circumstances.

How does the FHA loan process work?

The FHA loan program offers various mortgage products to suit different needs. Here’s a simplified breakdown of the process:

1. Pre-qualification: Get a pre-qualification from an FHA-approved lender to understand your estimated borrowing power. This will help you narrow down your home search based on affordability.
2. Find a home: Work with a real estate agent to find a property that meets your needs and falls within the FHA loan limits for your area.
3. Apply for a mortgage: Submit a formal mortgage application with your chosen lender. This will involve providing financial documentation, employment verification, and credit score information.
4. Underwriting: The lender will assess your financial situation and the property’s value to determine your eligibility and loan amount.
5. Closing: Once approved, you’ll finalize the loan details and closing costs with the lender and seller.

How do I know if I should get an FHA loan?

The some key points to consider when applying for FHA loans:

• Mortgage insurance: FHA loans require mandatory mortgage insurance, which comes
• Mortgage insurance: FHA loans require mandatory mortgage insurance, which comes in two parts: an upfront mortgage insurance premium (UFMIP) paid at closing and an annual mortgage insurance premium (MIP) added to your monthly mortgage payment. These premiums can add to the overall cost of the loan. (0/1-4)
• Loan limits: The maximum loan amounts are set by the FHA for each county. These limits ensure affordability and vary depending on location and property type (single-family home, condo, etc.).
• Closing costs: Be prepared for closing costs associated with processing the FHA loan, similar to any mortgage. These can include origination fees, appraisal fees, title insurance, and other charges.
• Pre-approval vs pre-qualification: Pre-qualification is a quick estimate based on what you say. Pre-approval is a deeper dive with verification, giving a more accurate loan amount and making you a stronger buyer in sellers’ eyes.
• Importance of using a reputable agent: A good agent can be your advocate in the competitive housing market. They have expertise in negotiation, market trends, and paperwork. They can help you find the right home, avoid pitfalls, and save money.

What are the costs associated with FHA Loans?

• Upfront mortgage insurance premium (MIP): This one-time fee typically amounts to 1.75% of the base loan amount. It protects the lender in case you default on your mortgage.
• Annual mortgage insurance premium (MIP): An annual mortgage insurance premium (MIP) is a fee paid throughout the life of the loan, typically on monthly basis. The annual MIP rate varies depending on loan amount, loan-to-value (LTV) ratio and mortgage term. For a more precise estimate of your annual MIP, you’ll need to consult with a lender and consider the factors mentioned above.
• Closing costs: These are various fees associated with processing your loan and finalizing the home purchase. They can range from 2% to 6% of the home’s purchase price.

FHA Loans vs Conventional Loans

FHA loans are ideal for first-time homebuyers or those with lower credit scores and limited down payment funds. Conventional loans might be a better option if you have excellent credit and a substantial down payment to qualify for potentially lower interest rates and avoid ongoing mortgage insurance premiums.

Here’s a quick comparison of FHA loans and conventional loans to help you decide which might be a better fit:

Feature	FHA	Conventional
Minimum Down Payment	3.5%	3% (Conventional 97)
Minimum Credit Score	580+	640+
Mortgage Insurance	Required, full term	Required if down payment is less than 80%
Interest Rates	Competitive	Lower for well qualified borrowers

FHA loans by state

While the process of getting an FHA loan looks similar across the nation, FHA loan limits and availability differ by state. Here’s some quick information for select states on FHA loans. You can use Stairs Financial to find specific FHA loan offers for your based on your financials and where you want to buy.

FHA loans in California

The five counties in California with the highest loan limits are:

1. Los Angeles: $1,149,825
2. San Francisco: $1,149,825
3. Orange: $1,149,825
4. Alameda: $1,149,825
5. Contra Costa: $1,149,825

FHA loans in Idaho

The five counties in Idaho with the highest loan limits are:

1. Teton County: $1,149,825
2. Blaine County: $759,000
3. Camas County: $759,000
4. Ada County: $586,500
5. Boise County: $586,500

FHA loans in Missouri

All counties in Missouri follow the standard loan limit of $498,257 for a single-family home.

FHA loans in Tennessee

The five counties in Tennessee with the highest loan limits are:

1. Cannon County: $943,000
2. Cheatham County: $943,000
3. Davidson County: $943,000
4. Dickson County: $943,000
5. Macon County: $943,000

FHA loans in Texas

The five counties in Texas with the highest loan limits are:

1. Bastrop County: $571,550
2. Caldwell County: $571,500
3. Hays County: $571,550
4. Travis County: $571,550
5. Williamson County: $571,550

Conclusion

FHA loans offer a pathway to homeownership for many Americans, especially first-time buyers and those with lower credit scores or limited savings. With a minimum down payment of 3.5% and flexible underwriting standards, FHA loans can make owning a home more achievable.

However, it’s important to weigh the benefits against the considerations, such as private mortgage insurance (PMI) requirements. By understanding the program’s ins and outs, you can make an informed decision about whether an FHA loan aligns with your financial goals and helps you navigate your home buying journey successfully.