FHA Loans

Affordable Home Financing with FHA Loans

Making homeownership accessible and affordable for all

What is an FHA loan?

An FHA loan, backed by the Federal Housing Administration, is designed to assist homebuyers with lower credit scores and minimal down payments. However, these loans come with prescribed limits, varying by region. Furthermore, the property being financed must meet specific safety, security, and structural integrity standards, necessitating an FHA-compliant appraisal. Explore how our FHA loans can help make your homeownership dreams a reality.

Affordable-Home-Financing-with-FHA-Loans

At Brighton Bank, we recognize that the path to homeownership can often seem intricate and overwhelming. With this understanding, we've crafted our FHA landing page to be more than just a digital touchpoint. It's not merely about presenting loan options; it's about equipping you, our valued customer, with a comprehensive understanding of what an FHA loan entails. Through interactive tools, easy-to-grasp information, and on-demand assistance, Brighton's FHA landing page serves as a guiding light for all aspiring homeowners, ensuring clarity, confidence, and a closer step to the home of your dreams.

FHA Loan Requirements

At Brighton Bank, we understand that FHA loans are insured by the Federal Housing Administration and often more accessible for borrowers. Here are some of the typical requirements for FHA loans:

Credit Score:
- The minimum credit score usually ranges from 500 to 580 to qualify for an FHA loan, depending on the lender and specific circumstances.
- Borrowers with a credit score between 500 and 579 typically must make a 10% down payment.
- Borrowers with a credit score of 580 or above can often qualify for the minimum down payment of 3.5%.
Down Payment:
- As mentioned, the typical down payment is 3.5% for those with a credit score of 580 or higher.
- All down payment funds can come from gifts from family members.
Debt-to-Income Ratio (DTI):
- The ratio of monthly debt payments to gross monthly income can exceed 43% up to 56.99% depending on the lender and borrower's credit profile.
Steady Employment History:
- Borrower must provide evidence for 2 years of steady employment. This can also include college courses in a filed of study that they have recently secured a job in.
Property Requirements:
- The property must be the borrower's primary residence.
- An FHA-approved appraiser must appraise the property. The property must meet specific safety, security, and soundness standards.

Key Benefits

The Federal Housing Administration (FHA) provides mortgage insurance on loans made by approved lenders throughout the United States. FHA loans are popular among homebuyers for various reasons. Here are some key benefits of FHA loans:

Lower Down Payment: One of the most significant advantages of FHA loans is the small down payment requirement. Typically, borrowers can put down as little as 3.5% of the home's purchase price.
Flexible Credit Requirements: FHA loans have more lenient credit score requirements compared to conventional loans. This makes them an attractive option for borrowers who might not have perfect credit.
Competitive Interest Rates: Even though they're designed for borrowers with less-than-perfect credit, FHA loans often come with competitive interest rates.
Versatile Financing: FHA loans can be used for various purposes, from purchasing single-family homes, multi-unit properties, or certain condos to refinancing. This versatility caters to a broad range of borrower needs.

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Loan Limits

The FHA establishes a cap on the loan amount they will insure, termed as the FHA lending limit. These limits are recalculated and refreshed yearly, taking cues from the standard loan limits set by Fannie Mae and Freddie Mac. Moreover, the nature of the property, whether it's a single-family home or a duplex, can impact these figures.

For 2023, the baseline for FHA loans for single-family homes was determined at $472,030. This foundational lending figure encompasses the majority of U.S. counties. The maximum boundary for an FHA loan, known as the FHA ceiling, signifies the peak amount a borrower can obtain through the FHA loan program and is illustrated in the table below.

Furthermore, in 2023, the highest limit, or the FHA ceiling, for single-family homes was established at $1,089,300. This ceiling pertains to the pricier regions within the United States and is detailed in the table provided below.

FHA Loan Types

The Federal Housing Administration (FHA) provides several different types of loan programs to help a variety of borrowers. Here are the main types of FHA loan programs:

FHA 203(b) Fixed-Rate Loan:
- The most common type of FHA loan.
- Typically used for primary residences.
- Borrowers can purchase and refinance a 1-4 unit home.
- Down payments can be as low as 3.5%.
FHA Adjustable Rate Mortgage (ARM):
- The interest rate can change periodically.
- The initial interest rate is typically lower than a fixed-rate loan, but it carries the risk of increasing in the future.
- Often come in 5/1 or 7/1 formats, meaning the rate is fixed for the first 5 or 7 years and then can adjust annually.
FHA 203(k) Rehabilitation Loan:
- Allows borrowers to purchase or refinance their home and include the cost of repairs, improvements, or upgrades.
- Funds for renovations are put into a separate escrow account and disbursed as the work is completed.
- Financing for repairs up to FHA loan limits.
FHA Energy Efficient Mortgage (EEM):
- Provides benefits to those buying a home that is energy efficient or committing to making energy-saving improvements.
- The cost of the energy-efficient upgrades can be rolled into the mortgage.

It's essential to note that each of these loans comes with its own requirements and limitations. Before committing to any particular loan type, borrowers should understand all the terms and conditions and consult with an FHA-approved lender or mortgage broker.

Mortgage Insurance

Mortgage insurance is a significant component of FHA loans. Mortgage insurance compensates lenders for losses due to loan defaults. Since FHA loans often cater to borrowers who might not qualify for traditional financing, the risk is potentially higher. MIP reduces this risk, making lenders more willing to approve loans with smaller down payments and less stringent requirements.

Here's a breakdown of the mortgage insurance associated with FHA loans:

1. Upfront Mortgage Insurance Premium (UFMIP):

Amount: Typically 1.75% of the base loan amount.
Payment: This is a one-time charge and can be paid at closing or rolled into the loan amount.
Purpose: This upfront premium helps protect lenders in the event of borrower default, especially in the early years of the loan when the amount owed is still high.

2. Annual Mortgage Insurance Premium (MIP):

Amount: Varies based on the loan's term (15 years vs. 30 years), the loan-to-value ratio (LTV), and the size of the loan.

2023 MIP Rates for FHA Loans Over 15 years

If you take out a typical 30 year mortgage or anything greater then 15 years, your annual mortgage insurance premium will be as follows:

2023 MIP Rates for FHA Loans Up to 15 years

Homebuyers who can afford to pay off their loans quicker and opt for a shorter term, such as 15-year mortgage, will benefit from lower insurance premiums, as follows:

Application Process

Obtaining an FHA loan involves a systematic process that's quite similar to other types of mortgages but with some FHA-specific steps. Here's a breakdown of the FHA loan application process:

Determine Eligibility:
- Before diving into the process, determine if you meet the FHA's criteria such as credit score, 2-year work history, and other eligibility requirements.
Select an FHA-Approved Lender:
- Not all lenders offer FHA loans, so it's important to find one that does. It's advisable to work with a direct lender who is experienced in the various FHA products.
Pre-approval:
- The lender will review your finances and provide an estimate of how much you might be approved for.
- A pre-approval letter can give you an advantage when house hunting as it shows sellers you're a serious buyer.
Choose a Property:
- Once you have your pre-approval, you can start house hunting.
- Remember that the property will need to meet FHA property standards and must be appraised by an FHA-approved appraiser.
Complete the Loan Application:
- After selecting a property, you'll fill out a property-specific loan application. The lender will require various documents, including:
  - Proof of employment and income (W-2 statements, recent pay stubs).
  - Proof of identity.
  - Credit report.
  - Personal assets information.
  - Any additional documents your lender specifies.
Property Appraisal:
- The lender will arrange for an FHA-approved appraiser to assess the property's value.
- The appraisal ensures the property meets FHA standards and helps determine the amount the FHA will insure.
Underwriting Process:
- The loan will move to an underwriter who will review all the information provided and make a decision.
- They may request additional documentation or clarification during this step.
Loan Approval:
- Once the underwriter is satisfied, the loan can be approved.
- You'll receive a "clear to close" status, which means you're ready to move to the final stages.
Closing:
- This is the final step.
- You'll meet with various parties, including a title agent, to sign all necessary paperwork.
- You'll also pay your down payment and closing costs.
- Once everything is signed and payments are made, the house is officially yours.
Post-Closing:
- After acquiring the house, you'll start making regular mortgage payments, including the Annual Mortgage Insurance Premium (MIP) if it's part of your loan.

Throughout the process, it's essential to ask questions and ensure you understand all aspects of the loan. Working closely with your lender can help streamline the process and address any concerns you might have.

Disclaimer: The loan scenario is based on a 15-year fixed FHA, property purchase price of $300,000 with a down payment of 3.5%. The interest rate for this loan would be 6.25%, with an Annual Percentage Rate, or APR, of 7.188%. Your estimated monthly payment for this loan would be $2,526/mo. Payment does not include taxes and insurance, your actual payment may be higher.

2nd Loan Scenario - The loan scenario is based on a 30-year fixed FHA, property purchase price of $300,000, with a down payment of 3.5%. The interest rate for this loan would be 6.25%, with an Annual Percentage Rate, or APR, of 7.141%. Your estimated monthly payment for this loan would be $1,814/mo. Payment does not include taxes and insurance, your actual payment may be higher. All loans are subject to credit approval, other terms and conditions may apply.

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