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Frank Coxx

Frank Coxx
Integrity Realty

980-307-5558
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FHA 3.5% Down Payment

What is an FHA 3.5% Down Payment Loan?

An FHA loan is a mortgage that’s insured by the Federal Housing Administration (FHA). They are popular especially among first time home buyers and some move up buyers because they allow down payments of 3.5% for credit scores of 580+. However, borrowers must pay mortgage insurance premiums, which protects the lender if a borrower defaults.

Borrowers can qualify for an FHA loan with a down payment as little as 3.5% for a credit score of 580 or higher. The borrower’s credit score can be between 500 – 579 if a 10% down payment is made. It’s important to remember though, that the lower the credit score, the higher the interest borrowers will receive.

FHA Loan Requirements

For borrowers interested in buying a home with an FHA loan with the low down payment amount of 3.5%, applicants must have a minimum FICO score of 580 to qualify. However, having a credit score that’s lower than 580 doesn’t necessarily exclude you from FHA loan eligibility. You just need to have a minimum down payment of 10%.

The credit score and down payment amounts are just two of the requirements of FHA loans. Here’s a complete list of FHA loan requirements, which are set by the Federal Housing Authority:

  • Borrowers must have a steady employment history or worked 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 a 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, typically. You may be able to get approved with as high a percentage as 40 percent. Your lender will be required to provide justification as to why they believe the mortgage presents an acceptable risk. The lender must include any compensating factors used for loan approval.
  • 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, typically. You may be able to get approved with as high a percentage as 50 percent. Your lender will be required to provide justification as to why they believe the mortgage presents an acceptable risk. The lender must include any compensating factors used for loan approval.
  • 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’ credit worthiness.
  • 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 meet certain minimum standards at appraisal. If the home you are purchasing does not meet these standards and a seller will not agree to the required repairs, your only option is to pay for the required repairs at closing (to be held in escrow until the repairs are complete).


Benefits of FHA Loans: Low Down Payments and Less Strict Credit Score Requirements

Typically an FHA loan is one of the easiest types of mortgage loans to qualify for because it requires a low down payment and you can have less-than-perfect credit. For FHA loans, down payment of 3.5 percent is required for maximum financing. Borrowers with credit scores as low as 500 can qualify for an FHA loan.

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 personal scenario.

Another advantage of an FHA loan it is an assumable mortgage which means if you want to sell your home, the buyer can “assume” the loan you have. People who have low or bad credit, have undergone a bankruptcy or have been foreclosed upon may be able to still qualify for an FHA loan.


FHA Loan Limits

The Federal Housing Authority sets maximum mortgage limits for FHA loans that vary by state and county. In certain counties, you may be able to get financing for a loan size up to $729,750 with a 3.5 percent down payment. Conventional financing for loans that can be bought by Fannie Mae or Freddie Mac are currently at $625,000.

To find out the FHA mortgage limits in your area, click here.

How Do You Get an FHA loan?

We can help you find FHA lenders and shop for mortgage quotes for an FHA loan quickly and easily by contacting me at fcoxx@integrityrealtyclt.com. The process is free, easy and we will walk you thourgh the whole process of getting pre-qualified.

FHA Loan Interest Rates

Below are today’s average FHA interest rates. You can also use other sites like Zillow to the see FHA interest rates for your particular situation.

Program Interest Rate APR 1 Day Change
30-Year Fixed FHA 4.28% 5.34% -0.01%
20-Year Fixed FHA 4.79% 5.99% 0%
15-Year Fixed FHA 3.87% 4.98% 0%
10-Year Fixed FHA 3.71% 4.99% 0%
7/1 ARM FHA 0% 0% 0%
5/1 ARM FHA 3.96% 5.47% -0.01%

 

You can now schedule a free consultation with me about the low down payment programs we have for you. We also have low credit score programs with 3.5% down. Schedule Now by clicking Let's Talk


Frank Coxx
Integrity Realty

Phone: 980-307-5558
Email: fcoxx@integrityrealtyclt.com

Testimonials

Frank is very knowledgeable in his line of work. He went to bat for me and my fiance during our homebuying experience. Frank is someone that I know would make the most appropriate decisions with the client's best interest in mind. With all his experience, hard work and dedication, you could not go   wrong if you choose him as your agent!! Thanks Frank, and we are loving our new place!!! Shakiya Mckenzie
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