Introduction to FHA Loans

What is an FHA Loan?

The FHA loan is a great option for homebuyers with less than perfect credit and/or limited funds available to them. The program was developed in order to provide an alternate means of accessing the high standards set by conventional loans, while still allowing room from qualification requirements that can be challenging on those who have been approved before but want something different now because their circumstances may have changed since then.

Do I qualify for an FHA loan in Texas?

You’ll need to satisfy a number of requirements to qualify for an FHA loan. It’s important to note that these are the FHA’s minimum requirements and there may be additional stipulations.

 

Credit score

The minimum credit score for an FHA loan with Trinity Oaks Mortgage is 600. Though the FHA has not changed its requirements, the combined effects of the COVID-19 pandemic and recession have led many FHA lenders to raise their minimum required credit scores for FHA loans.

 

Down payment funds

If you’ve got a credit score of 620 or higher, your FHA down payment can be as low as 3.5%.

The good news? It doesn’t all have to come from savings. You can use gift money for your FHA down payment, so long as the donor provides a letter with their contact information, their relationship to you, the amount of the gift, and a statement that no repayment is expected.

 

Debt-to-income ratio

The FHA requires a DTI of less than 50, meaning that your total monthly debt payments can’t be more than 50% of your pretax income. This includes debts that you aren’t actively paying.

For student loans in deferment, your FHA loan underwriter will include 1% of the loan’s total as the monthly payment amount. For other types of loans that you aren’t currently repaying, underwriters will use 5% of the loan’s total to calculate your DTI.

 

Property approval

The property you’re trying to buy with an FHA loan, whether it’s a house, a condo, a manufactured home, or a multifamily home, has to meet FHA minimum property requirements.

The FHA requires an appraisal that’s separate (and different from) a home inspection. They want to be sure the home is a good investment — in other words, worth what you’re paying for it — and ensure that it meets basic safety and livability standards. If the appraisal comes in lower than what they need to borrow, they would be responsible for coming up with the difference OR they may be able to use that to negotiate a lower price from the seller. 

Today, most contracts are being written with the buyers waiving the right to negotiate the price if the value comes in low. In that case, the buyer would be responsible for paying for it. When the markets shift back towards a buyers’ market then there may be options of re-negotiation.

 

Mortgage insurance

FHA mortgage insurance is built into every loan. When you get an FHA mortgage, you’ll make an upfront mortgage insurance payment (which can be rolled into the total amount of the loan) and make monthly payments thereafter. If you put less than 10% down the MI will remain for the life of the loan. But, with 10% down or more then the MI will remain on for only 11 years.

 

• As low as 3.5% down payment

• Upfront mortgage insurance may be financed or paid in cash

• Ability to choose from fixed- or adjustable-rate terms

• Closing cost paid by the seller is 100% negotiable, but a seller is not required to pay any cost towards the buyers closing cost.

• 100% gift funds – the entire 3.5% down payment can be a gift from parents, relatives or an employer

• Flexible credit qualifying – because it is government-backed, lower credit score thresholds are in place

• May also be an option for borrowers with limited equity looking to refinance.

Find out more and see if you are eligible for an FHA loan from your Trinity Oaks Mortgage Loan Advisor.

 

 

Are you interested in applying for an FHA Home Loan?

Trinity Oaks Mortgage, one of the area’s leading mortgage lenders has vast experience in dealing with USDA Rural Development loans in Texas. We’re available to answer any questions, help determine if you are eligible, and guide you through the home loan process.  

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