FHA Loans Ohio

The purchase price of a home is often the primary obstacle to overcome for those who want to become homeowners in Ohio. Most cannot afford to pay cash upfront for the entire listing price. Instead, they will take out a home loan and pay it back over the course of the loan plus interest.

However, conventional loans are not the most accessible option for Ohio borrowers. First-time homebuyers may not have enough income, savings, or strong credit history to qualify for a conventional mortgage. 

If you are uncertain about your eligibility for a conventional mortgage, then your best option could be an FHA loan. This government-backed loan is designed to be accessible to a wider range of borrowers, including those with limited means or short credit histories. 

Learn About FHA Loans

FHA stands for the Federal Housing Administration, a branch of the United States government that falls under the umbrella of the Department of Housing and Urban Development (HUD). FHA loans are backed by the government to make it easier for FHA-approved lenders to lend money to borrowers who may not qualify for conventional mortgages. As a result of the government’s involvement, more Ohio borrowers are able to acquire home loans. 

What Are FHA Loans?

Last year, the program offered financing to 478,000 first-time homebuyers, and over 30% of all loans went to borrowers of color. The Department of Housing and Urban Development has also been critical in ensuring equal access to financing for LGBTQ+ individuals, having released a mandate in 2012 that required FHA lenders not to discriminate against anyone regardless of perceived or actual sexual orientation or gender identity. This makes the program a crucial way to reduce housing disparity for marginalized people. 

Ohio FHA loans are ideal for individuals with limited financial resources or shorter credit histories. Each lender evaluates the risk of lending money to a prospective homebuyer based on the likelihood of default. With the government backing FHA loans, the lender assumes less risk, even if the homebuyer presents a higher risk compared to those who would qualify for a conventional loan.

If you have a lower income, a less-than-perfect credit score, or insufficient savings for the 5% down payment required for a conventional loan, an FHA loan may be the right choice for you. 

Am I Eligible?

Benefits of Federal Housing Administration Loans

Ohio FHA loans come with several significant benefits for borrowers. If you meet the qualifications the individual lender requires, these are the advantages you will enjoy with an FHA loan.

Lower Credit Score Requirements

Credit scores reflect borrowers’ ability to repay debts, including car loans, mortgages, and credit cards. Lenders want to see good credit scores when they give out money, but the FHA loan program allows those with lower credit scores to access homeownership.

This is especially important for LGBTQ+ and BIPOC individuals. Young adults in Black-majority communities have an average score of 582, which is just enough to qualify for the low down payment option. LGBTQ+ individuals of color are significantly more likely to have poor credit, so FHA loans can make the difference between owning a home and continuing to rent. 

Small Down Payment Options

A down payment is the amount of money you pay upfront on the house’s purchase price. The larger your down payment, the lower your monthly payments and the total loan amount will be. With an FHA loan, there are lower down payment requirements, so you don’t have to worry about saving up forever. 

Competitive Interest Rates

The interest rate on your FHA mortgage will determine your monthly mortgage payments and the total loan amount owed. A higher interest rate means higher costs. FHA loans typically offer lower interest rates to make homeownership more affordable for Ohio residents.

Flexible Underwriting Guidelines

Underwriting is the process used by a lender to evaluate risk for a particular homebuyer. In many cases, underwriting is automated, and applications are rejected if they do not meet certain guidelines. However, underwriting guidelines for an FHA loan are much more flexible, giving you more control over your homebuying journey and ensuring more homebuyers are able to get approved. 

This is especially important in terms of debt-to-income ratios, which can be very strict for conventional mortgages. Over a third of LGBTQ+ adults have federal student loans, which rises to half of transgender adults. 61.3% of Black households have unsecured debt, like educational debt or medical debt, compared to just 53.4% of white households, which can raise their DTI. The manual underwriting process ensures that the mortgage company takes the time to consider all facets of a borrower’s profile. 

Assumable Mortgages (Buyer Can Take over Existing FHA Loan)

Conventional loans are typically not assumable. However, if you are a first-time homebuyer and you meet all the eligibility requirements, then it is possible to take over an FHA loan from the previous owner of the house. 

Rather than acquiring a new mortgage, you simply take over the debt and payments of the former owner’s loan, along with that interest rate. Assumable FHA loans are an excellent option for borrowers with limited funds for a down payment. 

FHA Loan Requirements

FHA loan requirements can vary from lender to lender. However, some eligibility criteria are quite consistent across the industry. Here are some of the requirements you must meet to qualify for an FHA loan.

Minimum Credit Score

In most cases, the minimum credit score for an FHA loan is 580. Exceptions will likely be made for a score as low as 500, though you must compensate for that risk with a larger down payment or a much lower debt-to-income ratio. Remember, the higher your credit score, the easier it will be to qualify for a more competitive interest rate as well. 

Down Payment Amount

The minimum down payment for an FHA loan is 3.5% of the home’s sale price if you have a credit score of at least 580. Currently, the median sale price of an Ohio home is $259,500, meaning that someone with a score around this metric would need about $9,000. When you add in closing costs, this can be difficult to afford with a sizable down payment. Some lenders may recommend saving up for a 10% down payment if possible. This lower down payment requirement makes it easier for a first-time homebuyer who is struggling to save up substantial funds for a home purchase. 

However, some may still struggle to save up this amount, particularly marginalized borrowers, who are more likely to be in debt. Pride Lending has access to a variety of local, state, and national down payment assistance programs that can provide you with grants or second liens to help afford this. 

In Ohio, you may choose to work with the Ohio Housing Finance Agency (OHFA), which offers forgivable second loans. If you stay in your home for at least seven years without selling, transferring, or refinancing, the entire amount can be forgiven. We’ll also search for any city-wide or county-wide options, as well as work with our national partners to find you the assistance you need. 

Debt-To-Income Ratio (DTI)

The debt-to-income ratio is calculated by dividing your total monthly debt by your gross monthly income and multiplying it by 100 to give you a percentage. Lower is better in terms of being approved for FHA loans. A DTI of 43% or lower is generally recommended, though exceptions could be made for up to 57% if your finances are strong in other areas. The average Black or Hispanic household has a DTI above 46%, meaning they would strongly benefit from these looser restrictions. 

Property Standards

Since the government is involved in backing FHA loans, there is a stricter standard for what properties qualify. An official appraisal will be required to analyze the property’s safety and livability. Additionally, the home must become the primary residence for the FHA borrowers. 

Mortgage Insurance Premiums (MIP)

Since Ohio FHA loans involve more risk to the lenders, private mortgage insurance plays a significant role. There are two types of MIP required for FHA products: upfront mortgage insurance premiums, or UFMIP, and annual MIP.

UFMIP applies to every borrower, no matter how much they put down, and is always 1.75% of the base loan amount. It is paid as part of your closing cost.

Annual MIP is based on your down payment amount. If you provide less than 10%, you will have to pay MIP for the entire loan term, but if you offer more than 10% upfront, you can have the MIP canceled after 11 years. It’s also possible to refinance into a conventional loan once you have more than 20% equity, which would remove mortgage insurance for the new mortgage. 

FHA Loan Limits in Ohio

The HUD has limits on how much you can borrow, typically about 65% of how much you could get in a conventional mortgage.

Ohio FHA loan limits are controlled by two primary factors: the county where the property resides and the type of property being purchased. For example, the FHA loan limit in Franklin County is not the same as the FHA loan limit in Montgomery County. Also, the loan limits differ depending on if you are buying a single-family home, two-family home, or multi-family home. In most counties, this limit is $498,257, though there are some exceptions. 

Here are some of the FHA loan limits for a single-family home in the largest Ohio counties.

• Franklin County – $546,250
• Cuyahoga County – $498,257
• Hamilton County – $498,257
• Summit County – $498,257
• Montgomery County – $498,257 

The FHA Loan Process

If you hope to qualify for an FHA loan, there is a straightforward process for applying, getting pre-approved, and eventually finalizing your mortgage. Many lenders work with LGBTQ+ and minority borrowers to help them achieve their dreams of homeownership in Ohio. Here are the steps to acquiring your FHA loan.

1. Check your eligibility criteria – Do you meet the requirements for an FHA loan borrower, including the 580 credit score, a down payment of 3.5%, and a maximum DTI of 43%? It is possible to get a loan with a score as low as 500 and a DTI as high as 57%, but it may be more challenging.
2. Contact Pride Lending – The right lending partner can make all the difference in your home-buying journey, and Pride Lending is uniquely positioned to serve your needs. We’ll perform a loan consultation to determine what you’re eligible for and help you find mortgage companies that match your needs.
3. Sumit your details –Applying for an FHA loan and getting pre-approved can provide you with a clear understanding of your purchasing power as you enter the Ohio housing market, allowing you to make informed offers. We’ll let you know your tentative budget and send your preapproval letter to your realtor so that you can start shopping.
4. Get preapproved and shop for the perfect home – Once you have your preapproval letter, you can partner with a great realtor and find a property that is within your budget. 
5. Submit a bid – You and your realtor can identify a competitive offer and write up an offer letter.
6. Complete your application – The Uniform Residential Loan Application requires many of the same details as your preapproval application, but it also has information about the property, such as the address. 
7. Offer acceptance – The seller wil let you know whether they believe your offer is fair. If they accept it, you’ll sign a purchase contract, and you and your realtor can schedule the inspection.
8. Inspection – While this is not strictly necessary by FHA standards, your mortgage company may require it, and it ensures that the home is habitable. If any issues crop up, you can work with your realtor to decide who will pay for these repairs or if the deal is still valid.
9. Conditions – Once you have completed the inspection, we will work with you on the purchase contract, ensuring that all the conditions are correct. We’ll send this to your mortgage company so that they can check over the loan.
10. Begin underwriting – Pride Lending will submit all the details you have provided to your lender, whose underwriting team will start poring over your loan. They will ensure that all the details you have included are correct. They may request further details from you, so be sure to stay responsive. Final approval of your loan may require further information such as bank statements, paychecks, tax returns, and other documentation.
11. FHA appraisal – A certified professional will evaluate the property to ensure it meets the standards of the FHA loan program. 
12. Approval – If everything on your application was correct and the appraisal came back to match the purchase price, then you’ll receive the magic words: you’re clear to close. With this, our team will schedule the closing date with you, and the title company will reach out to explain how to transfer the funds due at close. 
13. Close the deal – Once the loan is approved, you can close on the home, pay the closing costs and down payment, and sign all the necessary documents. The title will be transferred over to you, and you will be the official homeowner. 

Why Choose Pride Lending for Your Ohio FHA Loan?

If you are a first-time homebuyer, you likely have many questions about how to qualify for an FHA loan and what kind of steady income is needed to afford a home. Pride Lending is here to answer all your questions and help you find the right mortgage product for your needs. 

Our team is here to assist everyone, no matter their background, in purchasing the home of their dreams. Pride Lending’s staff is composed of allies and members of marginalized communities, including BIPOC and LGBTQ+ individuals, who are passionate about ensuring equal access to financing for people from all walks of life. 

We will discuss your concerns together, whether they are about your monthly debts and gross income or the interest rates you can qualify for. We can also help you with down payment assistance. 

Give Pride Lending a call today at 725-231-0192 to start the conversation about your FHA loan amount.