What is a Florida FHA Loan?
A Florida FHA loan is a loan for a home in the state of Florida which is guaranteed by the federal government. These loans are insured by either the US Department of Housing and Urban Development (HUD), or the Federal Housing Administration (FHA). If the borrower cannot pay back the loan, HUD or the FHA helps to mitigate the lender's losses by paying a portion of the loan. The lower risk for the lender leads to several benefits to the borrower. These benefits include lower interest rates and lower credit requirements than most conventional loans. The most notable advantage, however, is much smaller down payments, often as low as 3.5%. Additionally, these down payments can be paid as a gift. These make FHA loans ideal for first-time homeowners.
To get an FHA loan that has a 3.5% down payment you need a credit rating of 580 or better. If you have a credit rating is between 500 and 580 you need to make a 10% down payment. Sometimes FHA loans are given to people with credit scores of less than 500, but only when they have a good credit history for the last two years. Individual lenders often have higher credit requirements for FHA loans than the FHA minimums. In Florida, most lenders are asking for minimum credit scores of 620 to 640. In addition to credit requirements, FHA loans look at your debt to income ratio. Your mortgage payment expense to income ratio (the percentage of your income you would be spending on your monthly FHA loan payments) must be 31% or less. Your total fixed payment to income ratio (the percentage of your income you are spending on all of your loan payments) needs to be less than 43%. The guidelines for FHA loans also you have held employment for the same employer for the last two years. FHA loans are only given to legal US residents. FHA loans can only be used on the borrower’s primary residence; they can never be used on a second home or a house you plan to rent. The maximum limit of FHA loans vary between different locations and types of housing. In Florida, the largest maximum limit is $1,017,300 for a four-unit home in Key West. The smallest maximum limit is $294,515 for a one-unit home in one of the cheaper counties.
Individual lenders set the rates for their FHA loans, so there is no standard rate. However, the guarantee of the government helps keep these rates lower than most conventional loans. In addition to interest rates, FHA loans ask that you pay for additional insurance which typically costs between .45% and .85%. In contrast to conventional loans, which often have options of both fixed and variable rates, FHA loans always have fixed rates. This means that the interest rates on an FHA loan will remain constant even when the economy causes variation in the prime interest rate. Longer term loans tend to have higher rates because there is a greater risk that prime interest will raise in that time, or that the borrower will come into a period of financial instability. Smaller loans have higher interest rates because the underwriting costs are roughly the same whether the loans are small or large. In Florida APRs typically range from 3.6% to 4.6%.