Years ago it took a sizable down payment of over 20% to obtain a mortgage in Florida. That kept many people, especially first-time home buyers, from being able to purchase a home. When the Federal Housing Administration (FHA) was formed they established universal lending guidelines that banks could use and if they did, the loan would then be guaranteed to the lender.
This guarantee meant that as long as an approved FHA lender funded a mortgage application following FHA guidelines, the lender would then be compensated for any losses due to foreclosure. Other government-backed loans like VA and USDA standards work similar to this.
This government guarantee is financed by both an upfront mortgage insurance premium and an annual mortgage insurance cost paid in monthly installments. The upfront policy is based upon a percentage of the loan amount and is then rolled into the homebuyers loan for a final loan amount. The annual premium is also based upon the outstanding loan balance and paid monthly.
The attraction, particularly to first time home buyers, is the low down payment required for an FHA loan. Today, FHA loans ask for a down payment as little as 3.5% of the sales price. For instance, say a couple finds a home for sale in Vero Beach listed at $175,000. The 3.5% down payment would then be $6,125. The down payment must come from funds verified as belonging to the borrowers, typically from a checking or savings account. The down payment can also come in the form of a financial gift from a family member or an approved non-profit agency.
As it relates to income, FHA lenders are required to verify at least two years of employment history as well as current, full-time income. Part-time income can sometimes be used if there is both a two-year history and the lender makes the determination the part-time income will continue into the future. Lenders ask the borrower to provide their most recent pay stubs covering a 30-day period along with the two most recent W2 forms.
For those that are self-employed, they can expect to provide the FHA lender with the two most recently filed federal income tax returns, both personal and business, as well as a year-to-date profit and loss statement prepared by the borrower or an accountant.
Credit standards for FHA loans are considered relaxed when compared to low down payment conventional mortgage loans. Lenders will request a credit report as well as credit scores from the three main credit bureaus, Experian, Equifax and Transunion. While the three scores will be similar, they are very rarely exactly the same due to differences in credit reporting practices.
The lender will ignore the highest and the lowest of the three scores using the middle as the qualifying score. If there is more than one borrower on the application, the lender will use the lower of the collected middle scores. With most lenders and banks this score should be a minimum of 620
FHA loans are popular in Vero Beach / Indian River County for buyers seeking financing that requires as little cash out of pocket as possible. FHA loans still provide very competitive interest rates and secure 30 year fix rate terms.
Note – there are also many USDA Rural Housing eligible locations just north of Vero Beach up to Sebastian. USDA still permits 100% financing to approved home buyers in these select “rural defined” locations. Buyers can learn more about the USDA benefits here. Just submit the info request form on this page to get started.
Happy to serve home buyers across Florida including Vero, Melbourne, Palm Bay, Port St. Lucie, Fort Pierce