What is a Hawaii FHA Loan?
A Hawaii FHA loan is a government guaranteed home loan in the state of Hawaii. FHA loans differ from state to state based on what lenders are available in that state, and by the maximum limits set for the different counties of that state. FHA loans are insured by either the US Department of Housing and Urban Development (HUD) or the Federal Housing Administration (FHA). Since these loans are insured, if the borrower defaults the FHA or HUD step in and pay part of the balance of the loan. This insurance lowers the risk for lenders, which allows lenders to offer more favorable terms. These terms include having better rates and lower credit requirements than conventional loans. Crucially, the government insurance enables lenders to provide these loans with a much smaller down payment than most mortgages. The down payment is often as low as 3.5% of the total cost of the loan and can even be paid for as a gift from a family member or friend. While a lower maximum limit eliminates some options for more expensive homes, the low down payment and credit requirements make FHA loans ideal for first-time homeowners. 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. Our mortgage calculator can also help you figure out what a home loan will end up costing you after all is said and done.
Since FHA loans are federally insured, they are restricted to citizens and legal US residents. To prevent people from using the program strictly to gain profit, FHA loans can only be used on primary residences--you cannot use FHA loans for a vacation home, or investment property. While FHA loans have some nationwide guidelines and restrictions, credit requirements are ultimately decided by individual lenders. In Hawaii, most lenders ask for a credit score of at least 620. The FHA guidelines, however, indicate that if a borrower has a credit score of 580 or better than they may qualify for a loan with a down payment of 3.5%. Any credit score of less than 580 will need to pay a 10% down payment. Borrowers who have a credit score that is worse than 500 are typically rejected, although exceptions are made for borrowers with poor credit scores with a good history in the past two years and those with no credit history. (For advice on maintaining a strong credit score, see our definitive guide to rebuilding your credit.
Other financial considerations are taken into account when qualifying for FHA loans. The borrower must have a good employment history, with few gaps and continuous employment for at least the last two years. The borrower must have both a good mortgage payment expense to income ratio and a good total fixed payment to income ratio. A mortgage payment expense to income ratio is a measurement of the percentage of the borrower’s monthly income that will need to go to cover the monthly payments on their home loan. For FHA loans, this needs to be 31% or less. A total fixed payment to income ratio is a measurement of the percentage of the borrower’s monthly income that will go to the payments that need to be made for all of the borrower’s monthly debt obligations. To qualify for an FHA loan, this needs to be less than 43%.
The maximum limit of an FHA loan is determined by the type of home it is being used on and the county that home is located in. In Hawaii, the largest maximum limit is $1,386,650 for a four unit home in Honolulu. The smallest maximum limit in Hawaii is $368,000 for a one unit home in Hilo.
While interest rates for FHA loans vary between individual lenders, they are generally lower than the interest rates for conventional loans, because the government guarantees FHA loans. These lower rates are counterbalanced a bit by the fact that borrowers need to pay for additional insurance for FHA loans, this usually adds between .45% and .85% annually to the cost of the loan. Loans have roughly the same underwriting costs whatever their size, so smaller loans usually have higher APRs than larger loans as that cost represents a more significant percentage of a smaller loan. All FHA loans have fixed interest rates, meaning that once the repayment plan is settled upon the interest rate remains constant independent of changes to the prime interest rate. This is partly why longer-term FHA loans tend to have higher APRs than shorter ones. With a longer term comes an increased risk that the prime interest rate will rise during that time. In Hawaii APRs between 3.6% and 4.3% fall within the normal range.