There are several types of FHA loans. The type you choose limits the type of home you can buy and how you can spend the money you receive. This makes it especially important to be sure you’re getting the right type of loan. If none of the loan types discussed next match your goals, you might want to consider another type of government loan.
Purchase
When purchasing a home, you can put as little as 3.5% down if you have a median FICO® Score of 580. If you have a score that low, you’ll need to keep an equally low DTI. Rocket Mortgage requires a ratio of no more than 38% before your mortgage payment is included, and no more than 45% once it’s included.
If your median FICO® Score is 620 or higher, you may be able to qualify with a higher DTI. In no event will your DTI be able to rise above 57%.
At Rocket Mortgage, you can purchase up to a two-unit property with an FHA loan.
FHA Rate-And-Term Refinances
Let’s say you have a different type of mortgage and interest rates are falling. Perhaps you’re interested in refinancing to take advantage of better mortgage rates but your credit profile has taken a hit.
An FHA refinance could be a good option because of its less stringent credit requirements. You can use this to lower your rate or change your term with a FICO® Score median as low as 580, assuming you have a low DTI. You may be able to carry more debt into the transaction if your median FICO® is 620 or higher.
Depending on the amount of equity you carry into the rate-and-term refinance, you could end up paying mortgage insurance premiums for the life of the loan in addition to an upfront premium. If you’re already in an FHA loan, you can save some money on your rate-and-term transaction.
FHA Streamline
An FHA Streamline Refinance allows homeowners with an FHA loan to do a rate-and-term refinance with a few special benefits. To begin with, you may be able to refinance to a lower rate.
The logic here is that if you have a more affordable payment, you’re more likely to stay in your home and pay it off, which is good for the FHA. You’ll also usually be able to get a lower mortgage insurance rate because the MIP for FHA Streamlines is 0.55% of your loan amount each year. Additionally, the upfront MIP is only 0.01%.
Another benefit of FHA Streamlines is reduced documentation. Every situation is different, but because you already have an existing FHA loan, you may need less documentation for:
If you don’t have an existing home loan with Rocket Mortgage, we require a 640 median FICO® Score. If your loan is with us, the required median FICO® Score is 580.
Timing is also important: You must make at least six payments on your current loan before you can be approved for a Streamline. Also, at least 210 days must pass between the first payment you make on your current loan and the first payment on the new Streamline.
Finally, you have to be up to date on your loan. For the purposes of an FHA Streamline, that means having no 30-day late payments in the last 6 months and only one payment that’s 30 days late in the last year.
FHA Cash-Out Refinance
It’s also possible to get a cash-out refinance with an FHA loan. Rocket Mortgage requires a minimum median credit score of 620 for an FHA cash-out refinance. The FHA requires that if you convert your property value into cash, you leave at least 15% equity in your home.
If you’re doing a cash-out refinance, you’ll need full documentation of income and assets, as well as employment verification.
FHA 203(k) Loan
While Rocket Mortgage doesn’t offer this particular loan, an FHA 203(k) loan allows you to buy a home and make renovations on a single loan. While it’s possible to only make renovations with a 203(k) loan, this usually isn’t your most affordable choice.
The minimum FHA 203(k) loan balance is $5,000, so you can’t borrow less than this. Any home repairs or improvements you make must conclude within 6 months in order to stay within your loan terms.
Some eligible projects you can complete with a 203(k) loan include:
Replacing old or dangerous flooring
Making improvements to the home’s modernization (This can include adding systems such as central air.)
Adding or replacing roofing, sections of gutters or plumbing
Making accessibility improvements for disabled people who live in the home
Making structural repairs and changes to the home’s foundation
There are two types of 203(k) loans: Standard loans and Limited loans. Limited loans require less paperwork for approval, while Standard loans give you more freedom to repair your property.
The FHA establishes loan limits annually based on the median home prices in metro areas and counties. The maximum loan amount is 115% of the area's median home price, subject to a national floor and ceiling. In 2024, the national floor is $498,257, and the national ceiling is $1,149,825.
The FHA establishes loan limits annually based on the median home prices in metro areas and counties. The maximum loan amount is 115% of the area's median home price, subject to a national floor and ceiling. In 2024, the national floor is $498,257, and the national ceiling is $1,149,825.
The three primary factors that can disqualify you from getting an FHA loan are a high debt-to-income ratio, poor credit, or lack of funds to cover the required down payment, monthly mortgage payments or closing costs.
The FHA-recommended limit is a DTI ratio of 43%. However, even if you have a higher DTI ratio, lenders can still consider you if you have considerable cash reserves and a high income.
If you put 20% down on an FHA loan, you would pay a lower annual mortgage insurance premium. The premium requirement would also stop after 11 years. However, if you have 20% to put down and your credit score is 620 or higher, you may want to pursue a conventional loan instead.
How much house can I afford with 40,000 a year? With a $40,000 annual salary, you should be able to afford a home that is between $100,000 and $160,000. The final amount that a bank is willing to offer will depend on your financial history and current credit score.
With both types of loans, the lender sets the interest rate, determined primarily by your credit score. FHA loans sometimes have more favorable interest rates than conventional loans — but the difference is often offset by the greater number of fees, including the MIP charges, that they have.
An FHA loan may be a better option if you have a lower credit score, a higher DTI ratio, or less money saved for a down payment. On the other hand, a conventional loan may work better if your finances are sound and you can qualify for favorable loan terms.
One reason a seller might refuse your FHA-backed offer is that they believe the home sale may be more likely to fall through due to the FHA loan program's more lenient underwriting requirements.
They are more accessible than Conventional loans. This makes them popular with a wide range of borrowers. With lower down payments, lower credit requirements, and the option for financial assistance, homebuyers from all financial backgrounds may be able to qualify.
The FHA's three requirements are that a property must be safe, secure, and structurally sound to qualify for one of their loans. Properties cannot have adverse conditions that might imperil the homeowner, and must meet proper building codes. As a buyer, these standards protect you from buying an unsafe property.
To qualify for an FHA-insured loan, you need a minimum credit score of 580 for a loan with a 3.5% down payment, and a minimum score of 500 with 10% down. However, many FHA lenders require credit scores of at least 620.
-- The sum of the monthly mortgage, monthly tax and other monthly debt payments must be less than 43% of your gross (pre-taxes) monthly salary. DISCLAIMER: The figures displayed above are based upon your input and may not reflect your actual mortgage payment or total monthly costs.
FHA guidelines for DTI ratios vary depending on credit score and other financial considerations, such as cash on hand. The highest DTI allowed is 50 percent if the borrower has a credit score of 580 or higher. Depending on the lender, other qualifications could also be required.
An FHA jumbo loan is a government-backed loan that allows borrowers with lower credit scores and smaller down payments to obtain larger mortgages over the FHA floor limit. This loan can be beneficial in locations with high housing costs and help borrowers looking at more expensive homes.
Let's look at an example of how your loan term affects your mortgage payment. At a 7% interest rate, a 30-year fixed $200K mortgage has a monthly payment amount of $1,331, while a 15-year fixed $200K mortgage at the same interest rate has a monthly payment amount of $1,798.
It cannot be used to finance a second home, a rental home, a vacation home, or an investment property. That said, there are some exceptions. You can use an FHA loan to purchase up to a four-unit dwelling, as long as you live in one unit as your primary residence. Then you can rent out the other units for income.
Introduction: My name is Carlyn Walter, I am a lively, glamorous, healthy, clean, powerful, calm, combative person who loves writing and wants to share my knowledge and understanding with you.
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