FHA Loans
Homeownership is more affordable than ever with FHA loans at Pride Lending!
Explore Our Home Loan Options
We make the mortgage process easy by working with numerous mortgage lenders, helping you find the right loan for your specific situation.
What Are FHA Loans?
Federal Housing Administration (FHA) loans are government-backed mortgages provided by FHA-approved lenders. If the homeowner defaults on their monthly mortgage payments, the federal government will reimburse the lender for a portion of their losses through the Department of Housing and Urban Development.
Because these home loans are supported by the FHA, mortgage lenders are more willing to borrow to first-time homebuyers and those with less-than-perfect credit who may not be eligible for conventional loans.
FHA loans are a great option for those with good credit but little savings for a down payment, as well as moderate-income families who have lower credit scores. FHA home loans have been incredibly helpful in reducing racial disparity in homeownership, as well; in fact, about 30% of all of these loans are provided to borrowers of color, which is far more than for conventional loans.
Benefits of Federal Housing Administration Loans
FHA loans offer incredible benefits for borrowers, especially as many down payment assistance programs even further reduce the upfront expenses of homeownership.
If you’re struggling to make the minimum down payment required by a typical loan, or you’ve been turned away by lenders due to having little credit history, an FHA loan might be your best bet. You can even seek out an FHA Energy Efficient Mortgage to add eco-friendly upgrades to your brand-new home and reduce your monthly utility costs. This could save you thousands over time!
Lower Credit Score Requirements
A conventional loan generally requires a credit score of 620 at the bare minimum, with many private lenders setting their minimums even higher than this. This can make it impossible for those with low credit scores to enter the housing industry.
Thankfully, an FHA home loan doesn’t need established good credit. To qualify for an FHA loan, you can have a credit score as low as 500, though you must pay a higher down payment to protect your mortgage lender. Those with scores of 580 or higher can benefit from extra perks, including a lower down payment.
Small Down Payment Options
An FHA loan requires a 10% down payment for those with credit scores between 500 and 579; those with a score of 580 or higher can put only 3.5% of the purchase price down on their new home. However, those who offer larger down payments may get better rates, as lenders set their own rates for FHA loans.
Given that the down payment requirement for conventional mortgages starts at 5%, even for those with excellent credit, FHA home loans allow those with little savings to still access homeownership. FHA borrowers can also use properly documented financial gift funds toward their down payments and closing costs, and many programs are available to provide no-string-attached funding.
Competitive Interest Rates
An FHA-insured mortgage is safer for lenders, as they can be assured that they will recoup some of their losses should the borrower default. As such, your monthly payments may be lower than for a similarly-sized conventional loan, thanks to more advantageous loan terms.
Even those with a poor financial history will get better terms with an FHA loan than they might for other loan products, though the interest rate for an FHA varies depending on the lender you choose. Pride Lending will assist you in seeking out the best possible loan term for your mortgage, helping you save thousands of dollars over the life of your loan.
Flexible Underwriting Guidelines
While FHA guidelines request the same information as for other loans to qualify, including tax returns, pay stubs, and employment information, the more relaxed credit standards make it possible to achieve homeownership even without a strong borrowing profile.
An FHA lender may offer you funding even if you have higher debt than would be acceptable for other products. You can qualify for an FHA loan even if you have a shorter credit history than might be possible with a different loan product. This makes it possible for younger borrowers to build equity faster by achieving homeownership sooner.
Assumable Mortgages (Buyer Can Take over Existing FHA Loan)
Another excellent aspect of FHA loans is that should you choose to sell your home before you have paid off the mortgage, your buyer will get the same great perks as you enjoyed with your FHA loan because the product is assumable.
FHA Loan Requirements
To access FHA loans, you must work with an FHA-approved lender, and the home you purchase must be your primary residence. Buying an investment home, such as a duplex or triplex, is possible, but it must also be your principal residence for most of the year.
Additional requirements include your credit score, down payment, DTI, the property’s condition, and paying an FHA mortgage insurance premium.
FHA Loan Limits
With an FHA loan, you can’t take out any home loan amount; you are bound by the FHA loan limits, which vary by county. These are a percentage of the conforming loan limit set by the Federal Housing Finance Agency, which oversees conventional mortgage products.
The FHA loan limit is determined by the average income, property value, and new construction cost in each county. You can check out how much you can borrow in a given county at the Federal Housing Administration website.
It’s important to note that it’s possible to purchase a home that has a higher purchase price than the FHA home loan limit, but you will have to make up the difference with your down payment; these only determine the loan amount you can take out.
Minimum Credit Score
To qualify, you must have a credit score of at least 500, which is much lower than that for a conventional mortgage; however, you’ll have to pay a higher down payment than if you had a better score.
Those with a 580 score or higher receive additional perks, including a lower down payment and better rates. There’s no maximum score to access FHA loans, though those with a great credit profile may be better served by different loan products.
Down Payment Amount
Borrowers with a 580 score or higher need only to put 3.5% of the purchase price down on FHA loans, which is much better than they would have to provide for a conventional mortgage. However, those with a 500 to 579 score must provide a 10% down payment to reduce the lender's risk.
Unlike with conventional loans, you will have some type of PMI even if you provide 20% down; however, if you provide more than 10%, your annual MIP will go away after 11 years. This will also reduce your mortgage payment and save money over time.
You can use gift funds to help pay for your down payment, and statewide and local assistance programs can supplement your contribution. As with other loans, the more you put down on an FHA loan, the better your chance of getting a lower interest rate.
Our team can assist you in finding state, local, and national programs, including those specifically geared toward BIPOC borrowers, such as the Black Homeownership Collaborative DPA program.
Debt-To-Income Ratio (DTI)
The debt-to-income ratio calculates how much of your gross monthly income goes to servicing other debt, such as credit cards, student loans, and auto loans. House expenses like utility bills or property taxes are not included in this calculation.
The Federal Housing Administration recommends that borrowers put no more than 43% of their income toward debt, with 31% of their income spent on housing expenses. However, lenders can go up to a maximum of 57% DTI at their own discretion, such as if the borrower has a great credit profile otherwise.
Property Standards
All FHA loan products must be appraised by an FHA-approved appraiser. This confirms that the home meets the minimum property standards the Department of Housing and Urban Development put forth for properties financed by FHA home loans.
This is not the same as a home inspection, which buyers can choose to forgo. Rather, it ensures that the home is safe and habitable. This appraisal will look for issues like foundation damage, a leaking roof, lead paint, bad electrical wiring, or a lack of clean water.
Mortgage Insurance Premiums (MIP)
With FHA loans, you will pay mortgage insurance premiums, which help protect the lender from default. There are two components to this: UFMIP, which is upfront, and annual MIP.
You will pay an upfront premium at the time of close, then an annual mortgage insurance premium throughout the life of the loan. Those who provide 10% or less at the time of close will have annual MIP payments for the entire term, while those who provide 10% or more upfront will have to pay for a minimum of 11 years.
Unlike in conventional mortgage financing, where your private mortgage insurance is highly reliant on your FICO score, your mortgage insurance premium will be the same no matter what your score is when you use an FHA loan. This helps you save money, especially if you have a lower credit rating.
Generally, you can expect to pay about 0.55% of the total loan amount in MIP each year if you put down less than 5% upfront, while it is 0.5% for those who provide 5% or more. Your upfront mortgage insurance premium will be 1.75% upfront and it is paid at the time of close.
The FHA Loan Process
Applying for an FHA loan is similar to applying for any other mortgage product. This includes filling out a loan application, getting an appraisal, and waiting for underwriting. These are the steps necessary to access FHA loans.
Check That You Meet the Requirements
Before you apply, ensure that you meet the basic stipulations of the program, which include your credit score, debt-to-income ratio, and financial history. You can’t have had any recent bankruptcy, and this must be your primary home.
Contact Pride Lending
Give us a call when you’re ready to purchase, and we will walk you through your options during a loan consultation. Not every lender offers FHA loans, so we will connect you to those who have what you’re looking for. Our network includes lenders with years of experiences, a solid reputation, and great reviews.
Submit Your Details
We make it simple and easy with our online application.The application process includes things like your credit history, employment details, tax returns, bank statements, and debts. When it’s complete, we’ll check it over for you and make sure that everything is correct.
Get Preapproved and Start Shopping
While it’s not always necessary to get preapproved, this can help you stay competitive in a hot market. Our team at Pride lending will pull your credit and work with you to determine the specific loan amount that you’re approved for. When this is done, we’ll send the preapproval letter to your realtor and you can start the home shopping process. We’re always here to help you throughout the process and can help ensure that you’re staying in your budget.
Submit an Offer
Your realtor can assist you with developing a competitive offer based on current market values.
Complete the Application
Now that you’re preapproved and have your offer submitted, you’ll complete the Uniform Residential Loan Application. This has much of the same details that were included on your preapproval application, but it also asks for information about the property itself.
Offer Acceptance
This part happens between you and the seller; they decide whether they believe your offer is fair. If they accept your offer, your will sign a sales contract, and the process can move to inspection, underwriting, and approval.
Inspection
Typically, as soon as your offer has been accepted, you and your realtor will schedule an inspection. This ensures that the home does not have any significant issues, like foundation cracks or a damaged roof.
Conditions
If you’re happy with the results of the inspection, then you’ll let us know that the sales contract is good to go. We will now start working on the conditions of the contract with you to ensure everything is correct.
Begin Underwriting
We will submit all the details that you have provided to the lender and their underwriting team; we do not do underwriting in house. The underwriter will manually assess all your details and ensure that everything is correct. This is an important step, and it often takes a week or more to complete. The underwriter may ask you for further details or to send additional paperwork, so be sure to remain responsive.
FHA Appraisal
During underwriting, your property will need to undergo appraisal by a qualified appraiser, who will determine whether the home is safe and habitable. This also ensures that the home’s sales price matches its real value.
Clear to Close
Once the underwriter has double-checked everything, it’s time to close on the home. We’ll schedule the closing, and the title company will send over the details for how to provide your payments.
Closing
This is when you will provide the down payment and closing costs to the lender, transfer the title from the old owner over to you, and sign the paperwork that proves the home is yours. With that, you’re ready to celebrate this new stage of your life.
Why Choose Pride Lending for Your FHA Loan?
Pride Lending is the premier LGBTQ+ mortgage solutions company. Our team is passionate about helping underserved communities, including LGBT and BIPOC individuals, and has years of experience helping first-time homebuyers and older homeowners alike access FHA loans, VA loans, conventional mortgages, and investment loans.
Our team includes allies and members of marginalized communities, including LGBTQ+ and BIPOC individuals; we’re here to help everyone, no matter their identity or the unique challenges they may face.
With our streamlined process and excellent customer service, you can be assured a pleasant and hassle-free experience that lets you focus on what you really want: finding a beautiful home where you can live your truth.
Get qualified today for an FHA loan, or email us for personalized assistance in finding the best mortgage for your needs. We’re here for you every step of the way, serving you with pride.
