Understanding FHA Home Loans – Sarasota County

Sarasota & Charlotte County home buyers looking for a minimum down payment mortgage, look no further than FHA. Did you know in 2023 FHA loans still only require only 3.5% down payment?

First, let’s look at the background of the Government-backed FHA loan program. it’s important to understand that FHA doesn’t actually lend homebuyers money, they only insure the loans against any lender loss.

FHA home loans are given to borrowers through FHA approved lenders who actually “lend the money” to home borrowers that have FHA insurance for the loans. Lenders are excited to loan money under FHA guidelines because FHA insures that if the loans default, then the lender gets repaid out of the FHA mortgage insurance fund.

The FHA loan program was initially developed in the 1930s as a way to help the housing market get going and since the beginning, the program has helped millions of families get into a home that would have otherwise not qualified for traditional financing.

Benefits of FHA Loans

FHA loans have risen in popularity in recent years because lenders have increased requirements for other loans. When compared to other types of loans, FHA loans are generally easier to qualify for due to flexible guidelines and lower down payment requirements.

FHA loans only require a 3.5% down payment from the home buyer.  FHA loans also have a lower credit score requirement than conventional loans. Although most lenders generally require a 620 credit score. Perfect for Sarasota and Charlotte county residents that are looking to purchase a home but have limited cash saved up.

Note, the 2023 FHA loan limit for most of Florida is set to $472,030 for a (1) unit property.

Getting Qualified or Pre-Approved For An FHA Loan

The first step to qualifying for an FHA loan is to work with a loan officer at an FHA-approved lender. General guidelines that the loan officer will discuss with you for FHA loans include:

• Documenting an employment history over the last two years.  FHA guidelines consider the last two years of employment and look at a steady pay history or employment with the same employer.
• Valid social security number and be a resident of the US.  There are exceptions for resident aliens, but these exceptions will vary by lender.
• FHA loans require a minimum down payment of 3.5% when buying a home – but the down payment may be a gift under certain conditions from family, etc.
• The property will need to be inspected by an FHA appraiser and an appraisal must be done. The appraised value must be at least the sales price of the home.
• The total monthly mortgage payment generally should not exceed 35% of your gross monthly income. Your total debt should not be more than  43% of your gross monthly income. There is some flexibility with this number depending on compensating factors like credit score, etc.

Mortgage Insurance For FHA Loans: FHA UFMIP

All FHA loans are required to have mortgage insurance – both up-front mortgage insurance (UFMIP) as well as monthly mortgage insurance.

Up-front mortgage insurance premium (UFMIP or MIP) is an insurance premium that is collected at the time of closing and is paid directly to FHA. It is financed into the loan and is 1.75% of the loan amount, regardless of the credit score.

So as an example for a $100,000 loan, you would pay 1.75% of the total loan amount or $1,750. This is generally “rolled into or added” to the loan balance. However, homebuyers can pay this out of pocket.

Annual MIP / Monthly MIP (known as PMI) Monthly mortgage insurance premium is actually an annual premium but is collected monthly. This amount of insurance premium depends on the loan-to-value ratio and length of the loan. For a standard 3.5% down payment, the monthly PMI is 55%.   As an example for a loan to value that is 96.5%, a $100,000 loan multiplied by .55% is $550 in annual premium that will be paid at the rate of $45.83 per month. This is added to your monthly payment each month like taxes and home insurance.

FHA Mortgage Source is Florida’s leading FHA loan resource, serving you 7 days a week.  Please call us at ph: 800-743-7556

Serving all of Sarasota and Charlotte County 7 days a week including Bee Ridge, Englewood, Laurel, Nokomis, North Port, Osprey, Sarasota, South Venice, Vamo, Venice and Warm Mineral Springs. Grove City, Palm Island, Placida, Port Charlotte, Punta Gorda, Rotonda and Solana.