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Ultimate Guide to FHA Loans in Maryland

August 26, 2018 By Tyler Plack 1 Comment

FHA loans are some of the easiest mortgages to be approved for. FHA loans are guaranteed by the Federal Housing Administration, and they are designed for homeowners who may have damaged credit, are unable to make a large down payment, or are first-time homebuyers.

Best Candidates for FHA Loans

  • Borrowers with damaged credit
  • Borrowers unable to make a large down payment
  • Borrowers who receive their down payment as a gift
  • First-time homebuyers

Advantages of FHA Loans

  • Low down payment requirements
    The required down payment on FHA loans ranges from 3.5% to 10% of the purchase price of the home, depending on your credit score.
  • Down payment funds can be received as a gift
    Many programs do not allow down payments to be received as gifts. With FHA loans, down payments can always be received as gifts.
  • Low interest rates
    The market for FHA loans is very competitive, so interest rates tend to be very low on FHA loans.
  • Bankruptcy & foreclosure forgiveness
    Recent bankruptcies and foreclosures are not dealbreakers. It is possible to become approved even if there was a recent bankruptcy or foreclosure if you can re-establish credit.
  • Sellers can credit closing costs
    The seller can credit the closing costs for your loan by up to 6%.

Downsides of FHA Loans

  • Mortgage insurance
    Mortgage insurance, also known as PMI or MIP for FHA loans, is required throughout the life of the loan. On conventional loan programs, mortgage insurance is required when the down payment is less than 20%.
  • Not all properties qualify
    FHA loans cannot be made on all properties. For instance, FHA loans cannot be acquired on properties that pose safety issues that would require a renovation.
  • Lending limits
    Lending limits as of 2018 for one-unit dwellings is $679,650. In low-cost areas, the limit for one-unit dwellings is $294,515.

How to Qualify for an FHA Loan

If you are looking for an FHA loan, you need to meet the following requirements in order to qualify.

  1. Credit requirements
    For an FHA loan, you need to meet a minimum credit score of 500 (or 580 to take advantage of a 3.5% down payment).
  2. Down payment requirements
    You need to meet a minimum down payment of 3.5% if you have a 580+ credit score. If you have a 500+ credit score, the down payment requirement is just 10%. 
  3. Debt to income ratio requirements
    Your debt to income ratio cannot exceed 43%. Debt to income is calculated as the sum of all debts divided by your gross income. For example, if you have an auto loan ($250 monthly payment), an installment loan ($200 monthly payment), and are looking for a mortgage ($2,000 monthly payment), your total monthly debt is $2,450. If you have a monthly income of $6,000, then your debt to income is $2,450 divided by $6,000 or 40.8%.

FHA Loan Summary

Down Payment Advantage
Credit Score: 580+
Minimum Down Payment: 3.5%
Debt to Income Ratio: 43% or less
Mortgage Insurance: Required

Standard
Credit Score: 500+
Minimum Down Payment: 10%
Debt to Income Ratio: 43% or less
Mortgage Insurance: Required

Tyler Plack is a licensed loan officer (NMLS# 1652645). He holds experience originating loans under many different programs. Tyler is local to the Annapolis area, and he loves spending time on the water, with his dogs, cooking new foods, and traveling.

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