Secure an FHA Loan in CA, AZ, TX, and CO with Landrum Loans
Most of the time, when talking about mortgages, financial experts and mortgage brokers talk about a down payment of at least 20%. That’s considered the “standard” down payment for a conventional loan. It can also be a large sum of money, especially for first time homebuyers in today’s housing market. In Sacramento, for example, the average home price is $500,000. At 20% down, that would require having at least $100,000 on hand.
That is a sum that is not possible for most families. That’s why many homebuyers turn to FHA loans.
You may have enough for the monthly mortgage payments, insurance, utilities, and other costs, but with real estate values where they are today, saving the tens of thousands – sometimes well over $100,000 – needed for that down payment may be out of your reach.
This does not mean you cannot still purchase a home. Recognizing the challenge a down payment presents for many families who are ready to be homeowners, the Federal Housing Administration (FHA) provides government backed loans to qualified homebuyers in Colorado. With nearly 50% of first-time buyers financing their homes with an FHA loan, this might be a solution for you.
Our team at Landrum Loans can explain more about financing your home purchase with an FHA loan, determine whether you qualify, and discuss other options available to you for a low down payment loan. Use our contact form or call us at (916) 813-9306.
Understanding the FHA Home Loan
The Federal Housing Administration, or FHA, is a government agency whose purpose is to help people buy homes with less of a down payment and favorable terms – even if they do not qualify for other types of loans. It is the ideal choice for borrowers that have good income, but do not have a significant down payment or have a lower credit score. The majority of FHA borrowers are first time homebuyers or have not purchased a home in many years.
These loans are provided by traditional lenders, but the FHA protects the loan, reducing the risk for the lender – which makes it easier for lenders to accept your loan and provide a more generous interest rate. Instead of the lender having full responsibility, the FHA will pay a portion of the loan if the borrower defaults. This reduces the risk lenders face when approving a loan, and makes it possible to lend to a wider number of borrowers without requiring extremely high interest rates.
Although it is not the only low down payment loan (and we are more than happy to discuss other options with you, including low-down payment conventional loans), the qualifying terms, interest rates, and advantages make FHA loans one of the most popular for homebuyers in the US.
Who Qualifies for an FHA Home Loan?
FHA loans are designed to help those who may not qualify for other loans to still be able to buy a home. Therefore, they tend to have more flexible qualification requirements. In general, buyers can qualify for an FHA loan with:
- 3.5% down payment at minimum, depending on your credit score.
- FICO credit score of at least 580.
- Debt-to-Income Ratio (DTI Ratio) must be less that 43% (or up to 50% in some cases)
- Maximum loan of approximately $700,000 based on location.
- Home must be the primary residence.
- Home must be safe and livable.
These are only guidelines for the typical qualification requirements on an FHA loan. The actual qualification process is more complex and will involve an extensive review of your finances and circumstances. Landrum Loans can discuss the specifics of your situation with you and let you know if you are likely to qualify.
What Are Interest Rates on FHA Loans?
It is important to keep in mind that interest rates on all loans change frequently in response to the economic outlook and lending data and can vary from day to day. However, these averages can give you an idea of what to expect if you receive an FHA loan:
- 30 Year Fixed Mortgage – 3.31% (3.35% APR)
- 15 Year Fixed Mortgage – 2.65% (2.85% APR)
As a professional loan originator with mortgage broker services, we are able to offer you the lowest interest rates available by finding lenders ready to compete for your loans. Your individual loan interest rate will also depend on your down payment, credit score, and duration of the loan, and we’re more than happy to provide you with a free estimate.
Determining if an FHA Loan is Right for You
Like any loan, an FHA loan has certain advantages and weaknesses that you will want to keep in mind when considering financing options. These include:
- Low Down Payment – Down payments with an FHA loan start at 3.5%, which is their primary advantage. They make it possible to afford a home without the significant savings required by other loans.
- Easier Qualification – FHA loans are also easier to qualify for. Your FICO credit score can be as low as 580 to secure a 3.5% down payment loan, your debt to income ratio can be higher, and gifts from family, friends, and organizations can be used to help you pay the loan.
- Must Carry PMI – You must have private mortgage insurance throughout the lifetime of your loan or until you refinance. With other loans, you can discontinue this at a certain loan to value ratio, but it will be a permanent expense with an FHA loan.
- Slightly Higher Interest Rates – Because the goal is to help those with lower savings or credit scores purchase a home, FHA loans have reasonable interest rates, but they’re not the lowest available. It can be possible to find lower rates with a different loan type, however.
- More Limited Choice – FHA loan amounts often have a cap, and homes must have certain features in order for the loan to apply. This can limit you from more expensive homes and some sellers may favor non-FHA buyers.
An FHA loan is the ideal choice for many homebuyers. In fact, approximately 47% of first time homebuyers use this type of loan each year to purchase homes. But there are other low-interest rate loans available as well, including 3% conventional loans, USDA loans, and more. If the limitations or associated responsibilities mean this loan cannot provide everything you need, or your family does not qualify, there are also other options for low down payment and no down payment loans.
Contact Landrum Loans to Get Started
Buying a home in today’s market requires obtaining a loan fast. It also means finding loans that fit your financial situation. In terms of financing, Landrum Loans wants to find you the right solutions to get you in your perfect home. We can review financing options, explain more about loan types, and help you get pre-qualified for a loan that meets your needs and budget. Contact us today to take the next steps.