What is a Georgia FHA Loan?
A Georgia FHA loan is a mortgage in the state of Georgia which is guaranteed by the federal government. These loans are, by their very nature, insured by either the Federal Housing Administration (FHA) or the US Department of Housing and Development (HUD). As insurers, the FHA or HUD pay lenders when borrowers default on their loans; this helps mitigate their losses and lower their risks. With lower risks lenders can offer mortgages with smaller down payments, as small as 3.5%. The borrower can pay this down payment, or it can be paid as a gift from a family member, friend or grant. The insurance also carries the added benefits of generally having lower credit requirements and interest rates than conventional loans. These factors combine to make Georgia FHA loans ideal for first-time homeowners in Georgia.
Want to figure out what your mortgage will end up costing you altogether? Check out our mortgage calculator.
Since FHA loans are not given out by the government (only insured), private lenders each decide their own credit requirements for FHA loans. However, FHA loans do typically have lower credit requirements than most conventional loans. In Georgia, most lenders look for borrowers to have a credit score of at least 620. FHA loans have a nation-wide minimum of at least 580 for a loan with a 3.5% down payment and 500 for a loan with a 10% down payment. Borrowers sometimes qualify with a score below the lender’s or even the FHA’s limits, if their credit history for the past two years is good. In addition to the credit requirements you need to have kept employment at the same place for at least two years, and you need a good debt to income ratio. Your debt to income ratio is measured in two ways. The first way is called your mortgage payment to income ratio. In order to calculate this ratio, a lender will start by taking the monthly payment you would have to make on your FHA loan and then divide this figure by that of your monthly income. To qualify for an FHA loan, your mortgage payment to income ratio needs to be 31% or less. (Check out our credit rebuilding guide
The other way they measure your debt to income ratio is called you total fixed payment to income ratio. This is calculated by adding together all of your monthly debt payments (FHA loans, car loans, student loans etc) and dividing that number by your monthly income. To qualify for an FHA loan, your total debt to income ratio needs to be 43% or less. There are some particular restrictions on FHA loans because the FHA loan program was created by the government to help more US residences become homeowners. First, the loan can only be used by citizens and legal US residents. Secondly, there are some restrictions on how the loan is used. It can be used for the purchase, renovation, or refinancing the borrower’s primary residence. It can not be used for a second home or a piece of investment property. There is a maximum limit on FHA loans, which is decided by the location and the type of home the borrower is using it for. In Georgia, the highest maximum limit is $990,800 for a four-unit in Greene County. The lowest maximum limit is $294,515 for a one-unit in one of the less expensive counties.
While conventional home loans usually offer the option of both fixed and variable rates, FHA loans are only offered with fixed rates. This means that the interest rates for FHA loans remain constant once after the mortgage payment plan is agreed open, independent of anything that happens to change what prime interest is. On conventional loans fixed rates are set slightly higher than the rates for variable loans, this is because fixed rates are more stable. However, since FHA loans are government insured, lenders typically give them out with lower interest rates than conventional loans. With FHA loans you have to pay for additional insurance on top of your interest, this usually amounts somewhere between .45% and .85% annually. Individual lenders determine loan rates, so they tend to vary between lenders and circumstances.
In Georgia, the normal range for APRs is between 3.7% and 4.8%. Shorter loans tend to have slightly lower rates because there is a higher risk that the prime interest rate will raise in that time and also a higher risk that the borrower’s financial situation might change. Larger loans tend to have lower APRs because the administrative cost of writing a loan is roughly the same whether it is a small or large loan and it represents a smaller percentage of the large loan.