During the past couple decades, FHA home loan purchases have become almost synonymous with down payment assistance programs (DPAs).
FHA has always had broad appeal for first-time home buyers because of the more flexible guidelines, lower down-payment requirements, and allowance for down payment alternatives–such as gifts and DPAs. The FHA loan was originally designed to help first-time homebuyers get into their first house as well as to help people who had less than perfect credit. But today, you will find the FHA loan is popular not only for first-time homebuyers, but with all different types of people in all types of situations.
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FHA loans are insured by HUD and have loan limits designated by Metropolitan Statistical Area (MSA), which in many cases encompass a specific county. The limits for single-unit properties with forward mortgages are now:
- $275,665 to $636,150 (Contiguous States, DC and Puerto Rico)
- $954,225 (Alaska, Guam, Hawaii and the U.S. Virgin Islands)
The range for an FHA loan limit can vary quite a bit, so you want to be sure your lender specifies exact details about what for and where you qualify. For example, a home buyer might feel like they are in the same qualifying area during their home-search, but by just crossing a county line to a new neighborhood their qualification could be drastically affected.
Complete MSA data can be found at: https://entp.hud.gov/idapp/html/hicostlook.cfmClick here to get matched with a local lender and find out your local programs & loan limits.
FHA has easier qualifying guidelines than what Fannie Mae and Freddie Mac require for Conventional loans. Automated underwriting approvals can be issued at much higher loan-to-value limits and FHA also allows a straight forward manual underwriting process if needed.
Some 2017 Highlights that make FHA good option for many include:
- 3.5% down payment
- Down payment gifts allowed
- DPA grants and DPA loan programs allowed
- More flexible underwriting guidelines
- Shorter seasoning for BKs and foreclosures
- Rehab loans available (FHA 203K) for fixer-uppers
- Manufactured home lending available
- Non-occupying co-borrowers okay
- FHA streamline program for easy FHA to FHA loan refinance when rates dip
Certain homes, including some condo projects, might be prohibited from using FHA financing. Be sure to consult with your trusted FHA loan advisor about which properties can or can’t use FHA financing.
Complete descriptions of Mortgage Programs can be found at: https://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/ins
Complete mortgage guidelines for FHA Programs can be found at: https://portal.hud.gov/hudportal/documents/huddoc?id=40001HSGH.pdfClick here to see if an FHA home loan program is for you.
Down Payment Assistance
Many down payment assistance programs go hand and hand with FHA financing. Most (but not all) of the first-time home buyer DPA programs are coupled with FHA home loans. However, there are also FHA $0 down programs designed to help buyers in high-cost areas, who earn incomes over 115% of the median income, yet have little ability to save for a down payment because of the high cost of living in those areas. On the flip-side, there are areas in the country where HUD offers a small supply of homes for sale for $1. Some current FHA programs include:
State-specific DPA Grants (Most states have programs to provide grants to cover all or most of the 3.5% down payment and closing costs for first-time home-buyers)
State-specific DPA 2nd mortgages (Most states have programs to provide money to cover all or most of the 3.5% down payment and closing costs for first-time home-buyers)
FHA – standard 203(b) (A normal 3.5% down FHA home loan that allows gifts for down payment. A qualified lender can cover all your costs on this home loan)
HFHA – rehabilitation 203(k) (Designed for home buyers seeking to rehabilitate a home that needs a little tlc)
HUD Dollar Home (Designed to help local governments foster housing opportunities for low- to moderate-income families buy selling certain HUD-owned homes for $1)
Almost every state has a down payment assistance program that can be paired with an FHA Loan program. Plus, there are hundreds of FHA loan programs designed with expanded eligibility for low- to moderate-income families.
Funds typically come in the form of a federal grant, a local bond program, bank subsidy projects, or a funding initiative sponsored by a local group. Grants are not paid back—it is free money. Some programs are set up as DPA 2nd mortgages, which are typically forgiven at some point in the future (i.e. after living in your home for 5 years, the DPA 2nd is forgiven and wiped away).
Be sure to talk to a qualified local lender who is certified to administer DPA programs in your state and local jurisdiction. Work with a trusted DPA advisor who will listen to your needs and understand your situation. A trusted DPA advisor can present ALL your personal options.