One of the goals that many Americans still have is home ownership. With a new year underway, it isn’t surprising to some people interested in buying homes. If you are looking to buy a home, it’s possible to get a little help from the Federal Housing Administration (FHA).
The FHA loan has long been popular because of its low down payment requirement, and the looser credit standards. Here’s what you need to know about FHA loan down payment requirements in 2017:
Down Payment as Low as 3.5%
First of all, it’s possible to buy a home with a down payment as low as 3.5% when you use the FHA loan program. You need to have a credit score of at least 580 to take advantage of this low down payment option.
However, even if you have a lower credit score of between 500 and 579, it’s still possible for you to access the FHA loan program. However, you have to be willing to put 10% down. On top of that, a lender still has to be willing to make the loan.
An FHA loan isn’t a guarantee that someone will lend to you. You still need to pass underwriting standards. However, there is a greater chance of approval because the government insures the loans.
Increase in FHA Loan Limits
The FHA has also increased its loan limits for 2017. There are some loans that are too large for the FHA to insure. The limits are based on the housing markets in different counties. In high-priced areas, it’s possible to get a bigger loan.
For 2017, the FHA increased the limit in 2,948 counties. The ceiling for high-priced areas is now $636,150. There is a good chance, though, that you don’t live an area that allows for such a big FHA loan. When getting your FHA loan, it’s important to know the market, and understand the costs.
Be Prepared to Pay Mortgage Insurance
When you get an FHA loan with less than 20% down, you need to pay mortgage insurance. It’s a way for you to help take on some of the risk if you end up in default.
If you only make the minimum 3.5% down payment, you can expect to have a pretty substantial chunk added to your monthly payment. While the insurance payment goes away once your home reaches 78% equity, it’s still a cost. The bigger your down payment, the lower your mortgage insurance payment, since it’s based on the size of your loan.
There were expectations for a cut in FHA mortgage insurance premiums, but one of the first thing that happened when President Trump took office was to suspend new and pending regulations from the Obama administration. That included the FHA mortgage insurance payment cut, which was set to go into effect on January 27.
Should You Get an FHA Loan?
Overall, the down payment requirements for an FHA loan are pretty straightforward. You need to meet the credit score requirements, and then you can pay as little as 3.5% down.
However, just because you can get an FHA loan doesn’t mean it’s the best deal. You still need to compare rates from different lenders and see if a different loan might work better. There are some conventional lenders that offer loans with as little as 3% down. Also, if you plan to buy in a rural area, you might qualify for a USDA loan for 0% down.
No matter what loan program you choose, though, you will have to pay for mortgage insurance if you don’t put 20% down. Carefully consider your financial situation and your needs, and consider consulting with a professional to get a handle on all your options. You want to make the best choice for you.