Houston First Time Home Buyers 2023 Guide to FHA Loans
Federal Housing Administration (FHA) are government-insured loans. These loans are great options, especially if you are a first-time-home buyer, because they do not require large down payment. In addition, if you have past bankruptcy or foreclosure, you may still qualify, once you have completed your waiting period.
Depending on the situation, I often recommend my first-time home buyers discuss these loan products with their loan officer as a viable option. Also, please be aware, the home you're thinking of buying must be your primary residence. It cannot be a vacation home or investment property. Below, we will take a look at FHA loan requirements, the new 2023 loan limits, mortgage insurance and the different types of FHA loans that are available to you.
FHA loan Credit Score Requirements - Please keep in mind that while The Federal Housing Administration sets minimum credit scores for FHA Loans, as shown below, lenders often opt to set their own credit score requirements, called overlay, which are often a bit higher.
FHA FICO® score of at least 580 is required for 3.5% down payment
FHA FICO® score between 500 and 579 requires a 10% down payment.
FHA Down Payment - The minimum down payment you can make on an FHA loan is 3.5%. However, if your credit score is less than 580 a 10% down payment will be required.
Income Requirement - FHA loans are not income-based. However, you must have steady income, usually 2 years employment and proof of employment.
Debt to Income Requirement - Debt to income ratio of 43-50% or less will be required.
What is FHA Loan Limit? - FHA loan limits change each year. For 2023, FHA loan limits for Harris, Montgomery, Brazoria and Fort Bend County range from $472,030 for a single family home to $907,900 for a four-plex.
Who Qualify for an FHA loan? - FHA loans are traditionally used by first-time buyers, however, you do not have to be a first-time home buyer to qualify. All things considered, you can apply for an FHA loan as long as you meet the requirements, and the home will be your primary residence, not an investment property or vacation home.
In fact, according to Rocket Mortgage, you can also apply for an FHA loan 2 years after the date of discharge on a Chapter 7 bankruptcy and 12 months after a Chapter 13 discharge as long as you have made at least 12 on-time bankruptcy payments and have written permission from the bankruptcy court to enter into a new mortgage transaction. There may be additional conditions, so please speak with your lender.
FHA Interest Rate - Per Bankrate, for today, January 10, 2023, the national average 30-year FHA mortgage APR is 6.63%. The average 30-year FHA refinance APR is 6.68%. Please keep in mind, that mortgage rates changes every day, Monday thru Friday. Please speak with your lender.
FHA Mortgage Insurance Premium (MIP) - is required with down payment of less than 20 percent. This insurance protects the lender from loss, in case you are unable to repay the loan. A large MIP payment is usually paid upfront at closing, followed by monthly MIP payment that will be included in your mortgage payment.
Can I Cancel the Mortgage Insurance? - No. With 3.5% down payment, you will not have the option to cancel the mortgage insurance. It is there for the life of the loan. However, with a 10% or more down payment, your mortgage insurance will only last for 11 years.
Mortgage Insurance Cost - The upfront mortgage insurance premium is 1.75% of the total loan amount. This cost is usually rolled into the loan.
What are the Different Types of FHA Loans?
203(b) is FHA single family home loan. It can be used to purchase single-family homes, manufactured homes, condos, as well as 2-4 units, as long as you, the buyer will occupy at least one unit.
203(k) otherwise known as the rehab-loan, is great if you are buying a fixer-upper. Although certain types of renovations are not permitted, a limited or streamline 203(k) allows you to borrow up to an additional $35,000 on top of your loan for repairs.
The standard 203(k) has a minimum of $5,000 and allows for structural repairs that is not covered by the limited 203(k). In addition, with a standard 203(k), a HUD consultant has to oversee the renovations.
Renovations that FHA considers to be luxuries, cannot be financed with a 203(k). This would include something like a swimming pool. As always, thank you so much for stopping by.
Image by Diana for First Home Houston
Source: Rocket Mortgage - Bank Rate
