What is a Delaware FHA Loan?
A Delaware FHA loan is a home loan in the state of Delaware that is insured by the federal government. Either the Federal Housing Administration (FHA) or the US Department of Housing and Urban Development (HUD) agrees to pay for part of the loan to private lenders if the borrower defaults. The government insurance lowers the risk for lenders, which makes it possible for them to have more lenient standards. Down payments on FHA loans are much lower than on most home loans. These down payments are also exceptional because they can be paid for as a gift from a family member. The nature of the down payments for FHA loans makes them ideal loans for first-time homeowners. Additionally, FHA loans have lower credit standards than most conventional loans. They also offer very competitive rates in contrast to most conventional loans. However, FHA loans tend to have lower maximum limits than conventional home loans.
The federal government only insures FHA loans; the loans are actually provided by independent lenders. The FHA has minimum qualification, but the independent lenders often have more stringent requirements than the FHA minimums. To qualify for an FHA loan in Delaware, you need to be a legal US resident. You must have held employment under the same employer for two years. FHA loans have a maximum limit which varies based on the type of home and its location. In Delaware, the lowest maximum limit is $294,515 for a single-unit home in Kent County. The highest maximum limit is $740,850 for a four-unit home in Newcastle County. FHA loans can only be used on the borrower’s primary residence, no investment properties. FHA loans have lower credit and debt-to-income requirements, but you still must be in fairly good financial standing to get one. You must have a mortgage payment expense to income ratio of at most 31%; this means 31% or less of your monthly income goes towards your mortgage payments. Your total fixed payment to income ratio, which is the percentage of your monthly income that goes to all of your debt payment obligations, needs to be 43% or less. To qualify for an FHA loan with a 3.5% down payment, you must have a credit rating of 580 or above. If your credit rating is below 580, you need to make a 10% deposit. FHA loans aren’t typically granted to borrowers with credit scores of less than 500, although exceptions are sometimes made for those with good credit history for the past two years. Many lenders have higher credit requirements than the FHA minimum.
FHA loans are, as a rule, guaranteed by the federal government via HUD, which typically leads to lower interest rates when compared to conventional home loans. However, since FHA loans have such small down payments, they require you to pay for additional insurance, which costs between .45% and .85% per year. Interest rates for FHA loans are always fixed. A fixed rate is a rate which does not change along with fluctuations in the prime rate. FHA loans are given by private lenders, and the rates are set by the lenders, so there is no nationwide standard interest rate for an FHA loan. Longer loans tend to have higher APRs because FHA loans have fixed rates and there is a greater risk that the prime rate will raise during a longer period. Smaller loans have larger APRs because the administrative costs are roughly the same whatever the size of the loan, so they are a larger percentage of a smaller loan. In Delaware FHA loans typically have APRs which range from 3.7 and 4.8%.