Great for first-time homebuyers.
Buying your first home can be intimidating and confusing, but it doesn’t have to be. Mortgage advisers at The Wood Group of Fairway are here to help, and the FHA loan program is a great place to start.
What’s an FHA Loan?
The FHA loan program is a government-insured* mortgage option. It was created by the Federal Housing Administration specifically for first-time homebuyers. FHA loans offer flexible qualification guidelines with a nice list of benefits.
FHA Requirements (How to Qualify)
While FHA loans aren’t only for first-time homebuyers, the qualification requirements were made with you in mind.
A 580 credit score is required for the lowest down payment benefit. Lower credit scores may qualify for FHA financing, but typically require a higher down payment.
Minimum down payments of only 3.5%.
43% is typically the highest debt-to-income ratio (DTI) allowed.
Proof of steady employment income.
No previous homeownership in the last 3 years.
The home must be your primary residence for 12 months.
FHA Loan Limits
Homebuyers are only allowed to borrow up to a certain amount if they’re using an FHA loan. Each county or MSA (metropolitan statistical area) in the United States has its own FHA loan limit. The limits for two, three, and four-unit properties are successively higher than one-unit limits.
These limits are subject to change every year. They vary by county. In 2023, low-cost counties carry an FHA loan limit of $472,030. Higher-cost counties max out at $1,089,300. Check your area’s FHA loan limit on the US Department of Housing and Urban Development website.
FHA Loan Benefits
The program’s simple requirements are matched with a great set of benefits appealing for all who qualify.
No minimum income requirements
Funding available for home repair or improvements (FHA 203k loans)
Gift funds allowed for the down payment
Options for seller-paid closing costs
First-time Homebuyer FAQs
Do FHA loans require mortgage insurance?
The FHA loan program does require that you pay mortgage insurance for the life of the loan. But it’s often a fair trade-off, considering the lower down payment and credit score requirements.
READ MORE: What’s Mortgage Insurance? How Much Does it Cost?
Which types of properties are eligible for the FHA program?
- Single-family homes
You must move into the home within sixty days of securing the loan. Then, you must live in it as your primary residence for at least twelve months. Therefore, homes purchased purely as an investment are not eligible to purchase through the FHA program.
The FHA loan program is not available for second homes, unless:
- Your job requires you to relocate
- Your family grew and your property now “fails to meet family needs”
- The loan-to-value ratio on your current home is equal to or less than 75%
- You co-signed on an FHA loan to help get approval for a home you don’t occupy
- You got divorced and no longer live in the home that you bought with your spouse
Will I save money buying vs. renting?
In the long term, most likely. Mortgage payments are often lower than rental amounts. Plus, you gain equity in the house and can make a profit when you sell it. With renting, that’ll never be possible. Speak with a mortgage adviser to get specific numbers for your situation.
READ MORE: 15- & 30-Year Mortgages vs. Renting: A Cost Analysis
What’s the true cost of owning a home with an FHA loan?
The upfront cost of home ownership with an FHA loan is confined to a low 3.5% required down payment and closing costs. Depending on your credit score, your down payment could be as low as 3.5% of the purchase price. Since gift funds and seller-paid closing costs are allowed with the FHA loan, your upfront costs may be close to nothing.
Monthly mortgage payments will include principal, interest, taxes, and insurance (PITI). If you’re renting, you’re basically paying for these costs through your landlord.
READ MORE: The Monthly Cost of Home Ownership: PITI (With Example)
What if I don’t have enough for a 3.5% down payment?
If you can’t make the FHA loan’s down payment and gift funds aren’t an option, a down payment assistance (DPA) program may be able to help. Speak with a mortgage adviser to learn about their benefits, costs, and qualification options.
READ MORE: Down Payment Assistance Programs in Texas