Buying a Home in Farmington Hills MI? The Benefits of An FHA Loan 

Buying a Home in Farmington Hills MI? The Benefits of An FHA Loan 

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

2020 Best of Farmington Hills REALTOR - Tom GilliamA 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.

From first-time homebuyers to multi-million dollar investors, Tom continually strives to provide top quality service for his clients. With access to the most up-to-date MLS listings for Farmington Hills MI homes for sale and surrounding Oakland County MI real estate, Tom is able to match his clients’ lifestyle needs with the perfect home.

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.

 Search the MLS for  Farmington Hills MI Homes for Sale

Search the MLS for Oakland County MI Homes for Sale

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
License #314578

The Myth of FICO Scores – Buying a House Is “POSSIBLE”

The Myth of FICO Scores – Buying a House Is “POSSIBLE”

What is the first thing people worry about when they are considering buying a home for sale in West Bloomfield, Michigan? The FICO scores.

In your eyes, what is the perfect score? 800? 850?

When you are saving for the down payment, what is your goal? 15? 20?

All these questions have myths attached to them that stop you from buying your dream house.

You see, most people don’t have thousands of dollars lying around in their bank account. There are other needs such as energy bills, food, etc, that stop you from making a frivolous purchase. However, a house is a totally different matter.

Let’s have a look at John’s life:

John has been working as a supervisor in a departmental store for about three years now. He makes $15,000 in a year. He has been saving for the past 6 years, since he was in the last year of his college. He meets this amazing young woman at the day of his graduation and he falls in love. After 2 years of dating, they decide to get married. They make plans for the wedding and decide that it would be better to spend the money he has saved onto buying a house instead of going to a foreign country for their honeymoon. They look for a home for sale in West Bloomfield, Michigan and after 2 days, find the one they like. Instead of taking out a loan, John decides to spend all his money on the house. Now, his savings account is quite low and he is struggling with the house bills and maintenance. He eventually decided to take out a pay day loan but due to the high interest rates, he ends up in debt.

As you might have guessed, the mistake John made was almost emptying his savings account.

Why did he do this? It’s probably because he thought he wouldn’t be able to get a loan due to his low FICO scores. Let’s get to the main point:

Busting the Myth

Here’s a shocker for you: you do not need a high FICO scores to get a mortgage loan! You will get the loan but to keep himself safe, the lender will probably charge a slightly high interest rate. This is a better option than going broke like John, don’t you think?

FICO Scores for Loans

Year All Loans Conventional FHA
2014 727 755 684
2015 730 757 688
2016 726 753 686
2017 722 751 680
2018 726 753 677

Interest Rates

The good thing about interest rate is that they change very slowly. They either go up by 1% or down by 0.5%. So, you don’t have to worry when going with a variable interest rate loan. Here’s a breakdown of how drastically the interest rates have changed in the past 5 decades:

  • 1970: 8.86%
  • 1980: 12.7%
  • 1990: 8.12%
  • 2000: 6.29%
  • 2010: 5.21%
  • Today: 4.52%

The reason why most people who have saved enough money by living in co-accommodations don’t go for apartments is because landlords keep increasing the rent yearly, which can make you lose all your hard earned money.

So, now that you know you don’t need a high FICO scores for buying a home for sale in West Bloomfield, Michigan, you can start searching for your perfect American Dream. Looking for a house that falls under your budget? Visit Homes2MoveYou and get in touch with me directly at 248-790-5594 to start seeing houses in areas of your liking.

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