What is a Arizona FHA Loan?
An Arizona FHA loan is a housing loan which is insured by either the US Department of Housing and Development (HUD) or by the Federal Housing Administration (FHA). Being insured means that the government will pay back part of the loan to the lender if the borrower fails to repay the loan. This insurance is a clear benefit to the lender by lowering the risk of loss. The borrower gains from some of the benefits in the form of lower rates, lower credit requirements and lower down payments. Down payments are often as low as 3.5%, and can be paid as a gift from family member. The more relaxed credit requirements and the smaller down payments make FHA loans ideal for buying a first home. However, relatively low maximum loan sizes mean FHA loans might not be able to cover more significant purchases. Below, we at Online Loans have broken down the assorted information available across the web into a convenient need-to-know to make getting you FHA loan as simple as possible.
There is a maximum size limit for FHA loans, which varies between counties and styles of home. In Arizona, the highest maximum is $696,650 for a four-unit house in Flagstaff. The lowest maximum is $294,515 for a single unit home in one of the least expensive counties. While some exceptions are made for those, who have had good credit over the last two years, typically, to qualify for an FHA loan you need to have a minimum credit score of 500. However, you need to have a credit rating of at least 580 to get a loan with a 3.5% down payment; if it is lower than 580, then you will need to make a 10% down payment. Individual lenders often have higher credit requirements than the FHA minimum. In Arizona, most lenders will ask for a credit rating of 620 or better. FHA loans have a maximum debt to income ratio. You need to have a mortgage payment expense to income ratio of at most 31%, meaning your monthly mortgage payments needs to be less than 31% of your income. You also need to have a total fixed payment income ratio of less than 43%, which means that all of your monthly debt payments combined need to be less than 43% of your income. In addition to the credit and debt to income ratio, requirements, you need to be residing in the United States legally. You need to use the loan to purchase, repair or upgrade your primary residence (no investment properties). You need to have held employment at your current job for at least two years.
Since the government insures FHA loans, they tend to have lower rates than other conventional loans. However, the rates for these loans are by no means universal since they are set by the lender. When a borrower has bad credit typically, they have to pay higher rates on their loans because they are considered higher risk. Loans with the longer term are considered higher risk as well because the bank is relying on the borrower to maintain their financial security for longer. The heightened risk of long-term loans increases the rates lenders charge. Smaller loans typically have higher APRs, not because of increased risk, but because the administrative costs of making a small loan represent a higher percentage of the loan, and lenders need to be compensated for this. Typical APRs for FHA loans in Arizona range from 3.5% to 4.8%. In addition to the regular interest rates, FHA loans demand private insurance which has annual charges of between 0.45% and 0.85%.