Maryland FHA Loan Requirements
All you need to know about Maryland FHA Loans
Getting a home loan is can be easy if you are a first-time home buyer or a seasoned one. The FHA mortgage loan is something that eliminates many of the problems associated with conventional loans. Here are some reasons why buyers in Maryland prefer an FHA mortgage loan rather than the traditional ones:
- Easy, streamlined refinancing opportunities
- Highly lenient credit requirements (500+ credit score)
- Low down payment promises (3.5% down payment)
These are just a few of the reasons that make FHA home loans a much better option.
But before we dive into all its benefits and compromises, let’s discuss what exactly FHA loans are:
What is an FHA loan?
An FHA loan is a type of government-backed mortgage that is insured by the Federal Housing Administration (FHA), one of the branches of the department of housing and urban development.
The FHA is a go-in-between between the lender and the borrower. They not only back your loan but also offer attractive insurance to the lender in case you are unable to repay the loaned amount. Thus, the lender is ensured that he will not suffer any losses and offers more loans at lesser risks.
Moreover, the FHA loan requirements are less strict so that more people can avail the money and work on their dream of having a house of their own.
What are the FHA loan requirements?
The most basic FHA loan requirement in Maryland is your intention to be a homeowner. If you are interested in rentals and want a second home, typically you will not qualify for the loan. Apart from that, here are some requirements that you will need to fulfill.
The credit score for your FHA loan requirements depends on the down payment option you want to avail. You need a minimum credit score of 580 for an FHA loan with a down payment of 3.5%. If your credit score is below 580 but above 500, you’ll need to put down at least 10%.
While FHA loans do not require a stellar credit score, any score below 500 will be unacceptable. There are exceptions, however, for applicants with “non-traditional credit history or insufficient credit.” Even if you feel that you may not qualify on the basis of credit, remember that our experts have access to nonprofit credit repair programs.
If you have any history of bankruptcy, you need to be out of it for at least two years and without any foreclosure for past three years. You also need to be current with payments for any federal student loans you might have as well as with your income taxes.
FHA Approved Lender
As FHA itself is not a lender and just an entity backing your loan, you will get your home loan only from an FHA-approved lender. These are lenders who are able to provide loans that are backed by the FHA.
As the services, cost, and standards vary among the lenders, and it is advised to shop around before settling on the best one. You can obtain FHA home loans through various sources including banks, credit unions, community banks, independent mortgage lenders, and more. Generally speaking, your best option will be to speak with a mortgage broker, as they have access to the widest variety of different lenders and can do the shopping and comparison for you.
Minimum down payment
The FHA loan requirements include a minimum down payment of 3.5% of the total cost for most mortgage borrowers. Anything below the required percentage will not be sufficient. The good news is that the borrowers can use anything from their savings, government grants, to financial gifts from friends or family.
If a borrower put down anything less than 20% of the total cost as down payment, then mortgage insurance will be charged. The FHA loan requirements include two mortgage insurance premium one needs to pay, an upfront premium and an annual premium.
The upfront premium is 1.75% of the total loan amount and needs to be paid when the borrower initially gets the loan. The yearly premium is anywhere from 0.45 % to 1.05 %, depending on the loan amount, term, loan-to-value ratio. This premium is equally divided into 12 installments and needs to be paid on a monthly basis.
Steady employment history
The applicant/borrower needs to have a stable and reliable employment history to be approved according to the FHA loan requirements. You need to have at least two years of employment history.
If your employment history shows constant fluctuations between employers and less time with each one, you will be deemed unreliable and will not meet the criteria required.
Apart from the evidence of two years of continuous employment with the same employer, your FHA loan requirements also call for a steady income. Moreover, your income history must show signs of improvement along with being stable and steady.
The general debt-to-income ratio that FHA allows is up to 43%. There are some exceptions where loans have been approved at 50%.
What are the advantages of getting FHA home loans?
FHA home loans are quite popular, and it is because of the plethora of advantages they have as compared to the traditional home loans. FHA loan requirements are quite lenient and do not call for strict action on numerous points. For example, you do not need a spectacular credit score to get approved. Other advantages include a lower amount of down payment, lack of private mortgage insurance, and much more.
Another unique advantage that FHA home loans offer is the coverage of the borrower’s closing cost. FHA allows lenders, builders, and home sellers to contribute to the closing cost which can act as an added incentive for people to buy new homes. They can pay for the appraisal, title fees, credit report, and such.
Although, most lenders will typically charge an elevated interest on the loan for the amount they will pay as the closing costs. The borrowers get a choice; they can estimate the amounts and choose whether they want the closing cost or the elevated interest rate.
Apart from the advantageous FHA loan requirements, you can also borrow cash for home repair and maintenance. FHA offers individual loans for people who cannot afford the money needed to repair their homes and make it habitable.
The best thing about this loan is that the loan amount is not dependent on the current appraised value of your home but instead on the projected value after you have repaired and revamped the house.
Such repair cost covers things like flooring, plumbing, bathroom remodeling, decks & patios, heating system, kitchen remodeling, and air conditioning.
People suffering from financial difficulties often see the greatest benefit from FHA home loans. It gives you a chance to reset and get approved for a loan even with a history of foreclosure or bankruptcy. While most banking institutions do not approve applicants with checkered financial history, FHA gives you a chance.
How the loan limits set?
The FHA loan limits are adjusted annually based on a variety of factors. The maximum loan limit and the minimum loan limit are typically adjusted according to the changing market and home prices. So, the limit for the FHA home loans varies from place to place, and the cost of living in that particular area will affect your overall loan application.
The areas with a higher cost of living will have more upper limits while the area with lower cost of living will have a lower limit. There are exceptions for places where the overall construction is more expensive including states like Hawaii, Alaska, the Virgin Islands, and more.
As a matter of fact, you will be amazed to know that low-cost areas will offer a loan limit of $294,515 for a single family home, $377,075 for a duplex, $455,800 for tri-plex, and $566,425 for a four-plex. Other cities offer similar loan limits with some variations!
In high-cost areas like New York City will offer a loan limit of $679,650 for a single family home, $377,075 for a duplex, $455,800 for tri-plex, and $566,425 for a four-plex. Other cities offer similar loan limits with some variations!
What are the required documents?
Once you have met all the FHA loan requirements for your home loan in Maryland, the application process starts. Here are all the documents you will need for your application process.
- Social security card
- Evidence of residence for the last two years
- Gross monthly income from your current employer
- Employment history for the past two years
- Details on all active loans
- Bank account information
- Details on any other owned real estate
- Approx. value of personal property
- Current paycheck stubs
- Individual tax returns for the past two years
- W-2 forms of the past two years
Once you have fulfilled all your FHA loan requirements and gathered all the required documents for the application process, you can go forward with your loan application. It is advised to shop around and look at different sources as the loan benefits and interest rates might vary.
As you can see, the FHA mortgage loan has been created specifically to simplify the process and make it easy for people to own their dream home. However, before you proceed further with it you must understand the basics.
People generally forget about understanding the process and end up making mistakes with the process. This is the reason they end up facing a lot of trouble not just during the filing process but also at later stages of the loan as well.
If you are keen on taking the same, it is advisable to either understand the process fully or get in touch with an expert who can do it for you. And, only then proceed further with the loan application.