Open the Door to Homeownership: 2024 Guide to FHA Loans

Are you dreaming of owning your own home but feeling daunted by the hefty down payment and stringent credit requirements of conventional loans? FHA loans might just be the key to making your homeownership dreams a reality. In this guide, we’ll walk you through everything you need to know about FHA loans – from what they are to how to qualify, and everything in between.

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What is an FHA Loan?

FHA stands for Federal Housing Administration, a government agency established in 1934 to help stimulate the housing market by making homeownership more accessible to Americans.
An FHA loan is a mortgage insured by the FHA, which means that lenders are protected against losses if the borrower defaults on the loan. This insurance allows lenders to offer more favorable terms than conventional loans.

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FHA Loan Requirements:

While FHA home loan requirements are known for being more lenient than conventional loans, there are still some criteria you’ll need to meet:

Credit Score:

Although FHA mortgages are more forgiving of past credit history mistakes, you’ll still need a minimum credit score of 580 to qualify for a 3.5% down payment.

If your score falls below 580, you’ll need to make a down payment of at least 10%. These loans are tough, and you are probably better off fixing your credit to reach 620

Most lenders require a minimum FHA loan credit score of 620. However, FHA loan rates start to shine when your credit score is above 660. Once you go over 720, the FHA loan interest rate and credit score benefit cap out, and Conventional loans may be the better choice.

FHA Loan Down Payment:

One of the most attractive features of Federal Housing Administration loans is that they require a low down payment. With an FHA mortgage, you can put down as little as 3.5% of the purchase price. If you put 5% down or more, your monthly mortgage insurance decreases from 0.55% to 0.5%, and if you put 10% or more down, your mortgage insurance expires after 11 years.

Debt-to-Income Ratio (DTI):

Lenders will also look at your DTI; the percentage of your monthly income that goes toward paying debts.

Your DTI should not exceed 57% of your gross monthly income if your credit score is above 620, and the Automatic Underwriting Engine gives you an “Approved Eligible” finding,

If your credit score from your tri-merge credit report is below 620, your DTI should not be higher than 43%.

Employment and Income Verification:

You’ll need to provide proof of steady employment and sufficient income to repay the loan. Typically, lenders will look for at your last two years of steady employment and income.

W2 Employees need last two W2s, last 4 paystubs, sometimes the last two tax returns, and a letter from their employer verifying the employment.

Self-employed individuals need the last two tax returns, plus the current year’s Unaudited Profit & Loss Statement.

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FHA Loan Calculator:

Curious about how much you can afford to borrow with an FHA loan? Use our handy FHA loan calculator to crunch the numbers! Simply input your loan amount, interest rate, and term, and the calculator will estimate your monthly mortgage payment. It is a quick and easy way to get a ballpark figure of what your monthly payments might look like.

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FHA Mortgage Loan Limits:

It is important to note that FHA loans are subject to loan limits, which vary by county and are adjusted annually. These limits dictate the maximum amount you can borrow with an FHA loan. Be sure to check the FHA loan limits in your county to ensure you stay within the allowable range.

Understanding the FHA Loan Limits

FHA loan limits are determined on a county-by-county basis, primarily based on the median home prices from the previous year. The Federal Housing Finance Agency (FHFA) uses housing price data to establish conforming loan limits for conventional loans. The U.S. Department of Housing and Urban Development (HUD) employs these limits to set both a “floor” and a “ceiling” for FHA loans.

Maximum Loan Amount Limit

The “floor” represents the maximum loan amount available for FHA loans in most regions, calculated as 65% of the conforming loan limit. In contrast, the “ceiling” pertains to high-cost areas and can be as much as 150% of the conforming loan limit.

FHA Loan Limits Florida

In 2024, Florida’s new FHA loan ceilings are $498,257 for one-family properties, $637,950 for two-family properties, $771,125 for three-family properties, and $958,350 for four-family properties. However, some Florida counties go even higher because Key West (Monroe County), Naples (Collier County), Miami (Miami-Dade County), West Palm Beach (Palm Beach County), and Fort Lauderdale (Broward County) are some of the cities where you can find higher FHA loan limits.
See the FHA Loan Maximum Limits 2024 – Florida in our blog “2024 FHA Florida Loan Limits & Guide”

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FHA vs. Conventional Loan:

You may be wondering, “What’s the difference between an FHA loan and a conventional loan?” While both types of loans can help you purchase a home, there are some key distinctions to be aware of:

Down Payment:

As mentioned earlier, FHA loans typically require a lower down payment compared to conventional loans, making them more accessible to borrowers with limited funds.

Credit Requirements:

FHA loans are more forgiving of past credit mistakes, making them a viable option for borrowers with less-than-perfect credit. Conventional loans tend to have stricter credit requirements.

Mortgage Insurance:

With an FHA loan, you’ll be required to pay mortgage insurance premiums (MIP) for the life of the loan, whereas conventional loans may allow you to cancel private mortgage insurance (PMI) once you reach a certain equity threshold.

For a more in-depth comparison, read our page “Conventional Loans Explained”

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Apply for an FHA Mortgage:

Ready to take the plunge and apply for an FHA loan? The process is relatively straightforward. Here’s what you’ll need to do:

Start by clicking in our page “Start Here”

Complete the Application: Fill out the loan application thoroughly and accurately, providing all requested information.

Gather Documentation: Be prepared to provide documentation of your income, employment history, assets, and debts.

Await our Call: Once you’ve submitted your application, we will review your information and call you to confirm the information before running credit.

Await our Approval: Once you’ve submitted your documentation, we will review your information and determine how to approve your loan.

Start Shopping: When your loan is approved, you’ll sign the necessary paperwork and we will set up your portal so you start shopping with confidence!

Bottom Line:

FHA mortgages offer a lifeline to aspiring homeowners who may not qualify for conventional loans due to limited funds or less-than-perfect credit. With their low down payment requirements and more lenient credit standards, FHA loans make homeownership more attainable for countless Americans. So if you’re ready to embark on the journey to homeownership, consider exploring the benefits of an FHA loan today!
Start exploring your options for a mortgage loan today and take the first step towards achieving your homeownership goals.

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