Buying a Home in Farmington Hills MI? The Benefits of an FHA Loan: Are you currently in the market to buy a home in Farmington Hills MI and thinking about your options for a mortgage? An FHA loan is a mortgage that’s insured by the Federal Housing Administration (FHA). FHA loans are popular with first-time, lower-income, and/or lower-credit home buyers due to their flexibility and low rates.
The FHA insures these loans on single-family and multi-family homes in the U.S. and is the largest insurer of residential mortgages in the world. They are a good option for buyers who may not have saved enough for a large down payment although no FHA loan options for a “zero money down” loan are available.
HUD 4000.1 states that FHA loan applicants cannot use “unapproved sources” for the down payment. Those unapproved sources include credit card cash advances, payday loans, or any other “non-collateralized loan” to make the down payment. Your financial institution is required to verify the sources of all down payment funds including cash saved at home, savings accounts, family member contributions, etc.
Even borrowers who have suffered from bankruptcy or foreclosures may qualify for an FHA-backed mortgage. A borrower can qualify for an FHA loan with a down payment for as little as 3.5% with a minimum FICO score of 580. With a credit score of 500 – 579, a borrower would be required to make a 10% down payment.
FHA borrowers are also required to pay two FHA mortgage insurance premiums — upfront at closing, and annually for as long as you repay your FHA loan, in most cases.
Down payment and credit score amounts are just two of the requirements needed to qualify for an FHA loan. Other FHA loan requirements set forth by the Federal Housing Authority include:
- Borrowers must have a steady employment history or work for the same employer for the past two years.
- Borrowers must have a valid Social Security number, lawful residency in the U.S., and be of legal age to sign a mortgage in your state.
- Borrowers must pay a minimum down payment of 3.5 percent. The money can be gifted by a family member.
- New FHA loans are only available for primary residence occupancy.
- Borrowers must have a property appraisal from an FHA-approved appraiser.
- Borrowers’ front-end ratio (mortgage payment plus HOA fees, property taxes, mortgage insurance, homeowners insurance) needs to be less than 31 percent of their gross income.
- Borrowers’ back-end ratio (mortgage plus all your monthly debt, i.e., credit card payment, car payment, student loans, etc.) needs to be less than 43 percent of their gross income.
- Borrowers must have a minimum credit score of 580 for maximum financing with a minimum down payment of 3.5 percent.
- Borrowers must have a minimum credit score of 500-579 for maximum LTV of 90 percent with a minimum down payment of 10 percent. FHA-qualified lenders will use a case-by-case basis to determine an applicants’ creditworthiness.
- Typically, borrowers must be two years out of bankruptcy and have re-established good credit. Exceptions can be made if you are out of bankruptcy for more than one year if there were extenuating circumstances beyond your control that caused the bankruptcy and you’ve managed your money in a responsible manner.
- Typically, borrowers must be three years out of foreclosure and have re-established good credit. Exceptions can be made if there were extenuating circumstances and you’ve improved your credit. If you were unable to sell your home because you had to move to a new area, this does not qualify as an exception to the three-year foreclosure guideline.
- The property must pass an FHA inspection and appraisal. The overall structure of the property must be in good enough condition to keep its occupants safe and must be worth the purchase price. Severe structural damage, leakage, dampness, decay, or termite damage can cause a failed inspection. In such a case, repairs must be made in order for the FHA loan to move forward.
FHA Annual Lending Limits
The FHA sets annual lending limits for home loan amounts that it will insure. These limits are determined based on the county in which you live and the type of property you’re purchasing. These loan limits are calculated and updated annually and are influenced by the conventional loan limits set by Fannie Mae and Freddie Mac.
Low-cost areas of the country have a lower limit, known as the “floor,” and high-cost areas have a higher figure, called the “ceiling”. It’s not uncommon for the ceiling loan limit to be more than double the floor for single-family properties. The limits also vary based on the type of property.
For 2020, the FHA floor was set at $331,760 for single-family home loans. This minimum lending amount covers 80% of all U.S. counties. The FHA ceiling represents the maximum loan amount and is illustrated in the table below:
| FHA Limits (low-cost areas) | |||
| Single | Duplex | Tri-plex | Four-plex |
| $331,760 | $424,800 | $513,450 | $638,100 |
Also for 2020, the FHA ceiling was set at $765,600 for single-family home loans. This represents the highest amount that a borrower can get through the FHA loan program. It applies to high-cost areas in the United States and is illustrated in the table below.
| FHA Limits (high-cost areas) | |||
| Single | Duplex | Tri-plex | Four-plex |
| $765,600 | $980,325 | $1,184,925 | $1,472,550 |
The Takeaway
Borrowers who cannot afford a 20 percent down payment, have a lower credit score, or can’t get approved for private mortgage insurance should look into whether an FHA loan is the best option for their individual scenario. Another advantage of FHA loans is that they are assumable, meaning that if you want to sell your home in the near future, the buyer can “assume” the loan you have.
Partner with Top-rated Farmington Hills MI REALTOR® – Tom Gilliam
A top-rated Farmington Hills and Oakland County MI real estate agent like Tom Gilliam can show you more properties and save you thousands of dollars when buying a home. You need an agent who knows the area, processes a vast network of local connections, and has the skills to negotiate like a pro.
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If you are ready to list your current property, Tom has the experience and skills necessary to handle the marketing and sale of your home. Tom employs the latest technology to deliver massive exposure to your home that will drive mega-response from qualified buyers.
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With over 25 years of local real estate experience, Tom will protect your interests and work extremely hard for you to ensure the best possible outcome. If you or someone you know is interested in buying or selling real estate in Farmington Hills MI or the surrounding Oakland County area, please give top-rated Farmington Hills MI REALTOR® Tom Gilliam a call today at 248-790-5594 or you can get in touch here.
Tom Gilliam, REALTOR®
RE/MAX Classic
29630 Orchard Lake Rd.
Farmington Hills 48334
Direct: 248-790-5594
Office: 248-737-6800
Email: Tom @ Homes2MoveYou.com
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