If you are looking to purchase a new home in 2019 but are unsure of your qualifications for a mortgage, an FHA loan may be the perfect solution for you. Thanks to a rise in the median price for housing, FHA loan limits increased for over 3,000 counties across the U.S. in the beginning of 2019, including Florida.
If you’re interested in qualifying for an FHA loan, it’s important to know about FHA guidelines, including:
- FHA loan limits
- FHA income requirements
- FHA credit guidelines
- FHA home inspection benefits
What is an FHA loan?
FHA loans are a government-backed mortgages offered by the Federal Housing Administration (FHA). When compared to many conventional bank loans, FHA loans have a lower down payment and lower credit score requirement.
FHA vs Conventional Loan
FHA loans loans were established to give individuals with a lower median income a chance to own their own homes. If you find yourself in any of the following categories, an FHA loan may be a good solution for you:
- First time home buyer with a low or bad credit score
- First time home buyer with little or no money saved for a down payment
If you have a lower credit score, but have saved money for years to buy a home, you may also be given the opportunity to qualify with a larger down payment of 10%.
Conventional loans are the best option for people with excellent credit, savings, or other assets, and a small amount of debt. They can take on the form of either a regular mortgage or a piggyback mortgage, which allows you to take out two loans for the same home. In either case, conventional loans typically require both of the following:
- A substantial down payment, usually up to 20%
- FICO credit score of 620 or higher
Once you meet the minimum requirements, these loans can offer a few advantages, such as lower closing costs and lower costs for mortgage insurance. If the home’s loan value to property value ratio is at least 80%, conventional loans also offer the opportunity to forego mandatory monthly home insurance payments.
FHA Loan Requirements
Down Payment & Minimum Credit Score for FHA Loan
The minimum credit score for an FHA loan is 580. This comes with a minimum down payment of 3.5%. In some cases, you can qualify for an FHA loan with a credit score between 500 and 579. However, your down payment requirement will increase to 10%.
FHA Income Requirements
To qualify for an FHA loan, you must have a debt-to-income ratio of 50% or less. If you have student loans, they are considered debt and will count against your debt-to-income ratio. In addition, you must have a steady employment history for the last 2 years. You may be required to prove this via tax returns, W2s, and/or paycheck stubs.
FHA Credit History
At the time of your application, you must have a minimum of 2 established credit accounts with on delinquent debt or federal judgements. It takes about 6 months to establish credit, so if you have less than 2 credit accounts and are seriously considering an FHA loan, it may be wise to look into establishing more credit sooner than later.
Not only do you have to meet a number of criteria as a home buyer, but the home you’re looking to buy must meet a few requirements as well. First, the property must meet current FHA loan limits, which are set by the county its located in. Next, you (the borrower) must be the primary occupant of the home.
As previously mentioned, FHA loans are run by the federal government. For those reasons, you must have a valid Social Security number, current U.S. citizenship, and be at least 18 years old to qualify.
2019 FHA Loan Limits
The FHA has established a maximum and minimum loan amount for borrowers. Loan limits are established according to property size and are also adjusted according to the cost-of-living in the Florida county being considered. At the start of 2019, the loan limit ceiling for standard Florida homes increased from $679,650 to $726,525.
For a low-cost area in Florida, the 2019 loan limit ceilings are:
- One-unit: $314,827
- Two-unit: $403,125
- Three-unit: $487,250
For a high-cost area in Florida, the 2019 loan limit ceilings are:
- One-unit: $726,525
- Two-unit: $930,300
- Three-unit: $1,124,475
Pro Tip: You can check out the current FHA loan limits by state, county, or Metropolitan Statistical Area here.
FHA Home Inspection
The FHA has set minimum property standards to ensure that home buyers financing through the Federal Housing Administration are buying a home with sufficient collateral to cover the debt. These minimum property standards also work to protect the mortgage lender in the case of foreclosure, where the home will be put back on the market and sold to cover the remaining loan amount.
For 2019, the Federal Housing Administration has also instigated new home appraisal guidelines. A home appraisal works hand-in-hand with a home inspection to provide an estimate of the property’s current market value and to inform the buyer what condition the major components of the home are in. This home appraisal is used by lenders to determine the home’s loan-to-value ratio.
A home inspection is used to give the home buyer the information needed about the property to make sure they are making a good decision. The home inspection goes beyond a cosmetic evaluation of the house and looks for major defects that can end up costing the buyer a lot of money and a lot of regret.
While the FHA does not require a home inspection for loan approval, it is highly encouraged that prospective home buyers have a home inspection conducted by reputable home inspection company.
How a Home Inspection Can Protect You
With a home inspection, you will discover hidden safety hazards or major house components that are near failure and should be replaced, even before you purchase the home. Major components in need of replacement may include:
- Windows and doors
- Plumbing systems
- Electrical systems
- HVAC system
In addition, a home inspection can uncover any of the following safety hazards:
- Water leakage
- Mold or mildew
- Structural issues
- Foundation problems
- Broken or non-functioning smoke detectors and carbon monoxide detectors
As a new home buyer, Palm Coast home inspectors can help buyers save money while guiding them in buying a home with appropriate value. In situations where a house has structural or operational problems, it is possible to negotiate a lower price or have an agreement put in place where cash is put into an escrow account for the completion of necessary repairs. However, both the homeowner and lender must agree that these problems can be fixed, do not present a major problem, and do not cause a significant devaluation of the home.