What is a Kansas FHA Loan?
A Kansas FHA loan is a type of home loan in the state of Kansas, which is guaranteed by the federal government. The loan is insured through either the Federal Housing Administration (FHA) or the US Department of Housing and Urban Development (HUD). This means that HUD or the FHA agree that if the loan is defaulted, they will pay a large portion of the outstanding balance. Insuring a loan significantly lowers the risk for the lender, which allows the lender to offer the loan with lower requirements and more favorable terms. One of most significant advantages of an FHA loan is its lower down payment. While conventional loans often ask for down payments of 20%, FHA loans usually ask for only 3.5%. For FHA loans, these down payments can be made by a friend or family member. These factors make FHA loans ideal for first-time homeowners.
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To assess the risk of you failing to repay the loan lenders look at your credit history and your employment history, as well as your current debts. To qualify for an FHA loan with a down payment of 3.5% you must have a credit rating of at least 580. While exceptions are sometimes made for those with good credit history in the past two years, you typically need a credit rating of at least 500 to qualify for an FHA loan with a 10% down payment (check out our credit rebuilding guide for tips on keeping your credit score up).
Lenders set their own requirements and often ask for credit scores higher than these minimums. To judge the stability of your current employment lenders ask that you have spent the last two years working for the same employer, while always maintaining or increasing your salary. Lenders also look at your previous employment history and see if there are any extended unexplained gaps. Lenders look at your current debts lenders in relation to your current income. To qualify for an FHA loan, you need to have a mortgage payment expense to income ratio of less than 31%. This means that the monthly payments on your FHA loans would have to be less than 31% of your monthly income. It is also necessary to have a total fixed payment to income ratio of less than 43%. This means that all of your monthly debt payments combined cannot equal more than 43% of your income. FHA loans are only given to legal US residents. FHA loans have a maximum limit which is determined by the county and the type of housing the loan is being used for. In Kansas, the highest maximum limit is $612,600 for a four-unit home in Kansas City. The lowest maximum is $294,515 for a one-unit home anywhere outside of the Kansas City area. The funds from this loan can only be used to buy, improve, or refinance a primary residence. They cannot be used on a second home or investment property.
While the guarantee of the federal government helps keeps the interest rates for FHA loans generally low, the rates are set by individual lenders, so there is a lot of variation, and it’s worth comparing the rates between a few different lenders. In addition to the interest rates, FHA loans have an annual insurance fee that is between .45% and .85%. Interest rates for FHA loans are always fixed. This means that the interest rates remain constant throughout the term, independent of any variations in the prime interest rate. This makes the loan more stable for the borrower. Smaller loans typically have higher APRs than larger loans, because the underwriting cost is roughly the same, therefore representing a higher percentage of the smaller loan. Longer FHA loans tend to have slightly higher rates because it locks the borrower in for a longer period. In Kansas FHA loans normally have APRs between 4% and 4.5%.