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The Federal Housing Administration (FHA) doesn’t make or guarantee loans, but it’s been insuring home loans since 1934. FHA loans offer a low down payment option with less stringent qualification requirements than a conventional loan.

We’ll go over why an FHA loan could be right for you if you’re looking to buy or refinance a home.

Why Is an FHA Loan a Good Option for Single or First-Time Home Buyers?

First-time and single homebuyers should explore FHA loan options for several reasons:

  • It’ll be easier to qualify for an FHA home mortgage because your loan will be insured by the government, making your application more attractive to lenders.
  • An FHA loan often costs less than a conventional mortgage and is more forgiving if you have issues with credit and payments.

To go over these advantages in greater detail, let’s take a look at a couple of key numbers.

Low Down Payment

FHA home loans don’t require a large down payment at closing time, which is a huge plus for first-time home buyers or a person seeking to buy a home on a single income. FHA clients can get financing with a loan-to-value (LTV) ratio of up to 96.5%. This means you’d have the ability to get a new home with as little as 3.5% down.

Yet another advantage of FHA loans for single or first-time buyers is that FHA mortgage terms may allow you to wrap closing costs into your mortgage. Because typical closing costs for FHA home loans are around 2% or 3% of the total mortgage, this option can allow you to get a loan that would otherwise be cost prohibitive if you don’t have stacks of extra cash at your disposal.

Credit Advantages

There are several advantages to FHA mortgages, particularly if you’re a lower- to middle-income buyer or you have experienced financial difficulties in the past. It’s important to note that the following guidelines apply to loans originated by Quicken Loans. Other lenders may have different requirements.

Qualify with Less-Than-Perfect FICO®

Clients who are otherwise well-qualified may be able to get a loan with a FICO score of as low as 580. This may enable them to get a mortgage even if they’re trying to rebuild their credit after past mistakes.

Higher Debt-to-Income Ratios Allowed

If you have a credit score in the mid-to-high 600 range, your allowable debt-to-income (DTI) ratio is higher on an FHA loan than the DTI ratio requirements on conventional loans. This means that if your debt is relatively high compared to your income, you may still qualify for an FHA loan.

Credit Blemishes

If you declared bankruptcy, you may be able to get an FHA loan a year or two from the date of your bankruptcy discharge or dismissal, as long as you’ve maintained good credit since your debts were discharged. The length of the waiting period depends on the type of bankruptcy filed.

Furthermore, if you foreclosed on a former home and have kept your credit in great shape since the foreclosure, you can apply for an FHA loan three years following the final date of your foreclosure.

How Could FHA Cash-Out Refinancing Options Help Me?

If you know you’ll soon need cash for college tuition or major home improvements, then an FHA cash-out refinancing option may be just what you need.

You may be able to get a lower interest rate than traditional home equity financing. An FHA refinancing loan offers amounts up to 85% of the appraised value. This enables you to convert more of your equity into cash compared to a conventional loan from Fannie Mae or Freddie Mac.

Costs Associated with FHA Loans

Another appealing feature of FHA loans is that their mortgage rates and terms are competitive with conventional mortgages. Interest rates on FHA loans generally fall within .125% of rates on conventional loans.

Also, with an FHA loan, you have the option of having the upfront mortgage insurance premium rolled into the loan, meaning the 1.75% of the loan amount that would normally be paid at closing is added on to the loan balance to be paid off over time.

There is a monthly mortgage insurance charge. The amount of this depends on the size of your down payment.

Are There Any Special Requirements or Limits on FHA Mortgages?

Another consideration is the limit on the amount of money you can borrow with an FHA loan. Although the upper limit for most conforming loans is $453,100 ($679,650 in Alaska and Hawaii), FHA loan limits are set on the basis of your county and are often lower than these amounts.

Because FHA home loans also have requirements for debt-to-income ratios, maximum loan amounts, and other details, it’s important to ask your lender for help when deciding which mortgage is right for you.

If you’d like to look at an FHA loan as an option in your purchase or refinance process, you can get started online through Rocket Mortgage® by Quicken Loans. If you’d prefer to get started over the phone, you can give us a call at (800) 785-4788.

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This Post Has 28 Comments

  1. My husband and I are recently self employed with an annual income of $40,000 , my credit score is 610 and my husband is around 600, would we qualify for a QL on a $48,000 home loan. ?

    1. Hi Sabrina:

      I’m ultimately going to recommend you speak with one of our Home Loan Experts at (888) 980-6716. Based upon your credit scores, you would qualify for an FHA loan right now and you’re very close to qualifying for conventional options. They would be able to work with you to come up with the best possible game plan and figure out what you could afford. Have a good day!

  2. I recently applied for a mortgage with QL, but was denied since my score was at a low 523. In checking recently, QL credit shows my credit at 603. Based of this info, do you believe this would be sufficient enough to start the preapproval process again? In reading several articles, it seems as if the score shown on QL credit uses Vantage, and not FICO.

    1. Hi Jonathan:

      We do use VantageScore when it comes to QLCredit because that way we can pull your credit every couple of weeks without a ding on your score. However, I would say the systems are at least comparable assuming the bureaus have the same information. I recommend speaking with one of our Home Loan Experts at (888) 980-6716. Thanks for reaching out!

  3. Hi, my husband and I are looking to get a FHA loan soon. there is a house we found for $111,500. His credit score is 620, and mine is 551. with past late payments on my end but now paid in full.. we are putting $4000. down payment if approved.. what are the chances we get approved? are there any tips on bettering odds.

    1. Hi Joanna:

      In order for your income to be used on the loan, you need a FICO median score of at least 580. I’m going to recommend you check out our friends at QLCredit. You can get your credit score and report for free through VantageScore and TransUnion. You can get an updated version every two weeks. I’m also going to recommend you speak with one of our Home Loan Experts at (888) 980-6716. They’ll be able to go over any options you have in more detail. I hope this helps and I wish you luck!

  4. I have 10% down, no debt and a credit score of 713. I make 85k. Would I qualify for an fha loan? You not issue on credit rot is a dispute with A creditors and some late payments in the past.

    1. Hi AJ:

      Your credit history is examined as part of getting a loan. Assuming your self-report is accurate, your credit score is fine, not having debt is good and so is a 10% down payment. Disputed accounts and past late payments can sometimes cause hiccups, but not always. I’m going to recommend you speak with one of our Home Loan Experts at (888) 980-6716. They would be able to take a deeper dive on your personal situation and look into your options. Thanks!

  5. I would like to buy the home I am currently living in. I pay the mortgage now with it being in some one else’s name. He is in bad health and would like to get it out of his name. My credit score at last check was 598. Would I still need a down payment even if the amount owed is 29k with the appraisal at 89k? I’d like to put a new roof ,windows, and few other things into the house.

    1. Hi Ellen:

      There are a couple of possible options I would take a look at here. You could do an assumption of the loan with the permission of the lender or the servicer you make the payment to. They make sure that you qualify for the loan. You would just take over the loan and it would be out of his name. You would then do a quitclaim to get the title in your name.

      The other option would be to buy the home through a mortgage company, but you can do so with him giving you what’s known as a gift of equity. That means he would sell the house below what it appraises at and you would use the difference between the sale price and the actual appraised value as your down payment. The only other thing to think about is that you only qualify for an FHA loan based on your credit score at this point. Therefore, if you’re not living with a relative, the minimum gift of equity would be 15%.

      I recommend speaking with one of our Home Loan Experts about your options at (888) 980-6716. They could go over all of your options.

  6. I’m looking to buy a house I’m a first time home buyer. I’ve had people contact me about helping me with my credit but my numbers fit into the profile for a FHA loan the house we like is less than $70,000 and it’s in a flood zone does that matter

    1. Hi Candy:

      The flood zone part doesn’t matter for your actual loan approval, but you’ll likely have to buy extra flood insurance coverage. We can certainly help you look into your options as far as the loan. If you would like, you can apply for preapproval online through Rocket Mortgage or feel free to give one of our Home Loan Experts a call at (888) 980-6716. Hope this helps!

      Thanks,
      Kevin Graham

    2. So we would like to buy the house across the street from my parents. It is a duplex. We would live on one side and eventually rent out the other side. We can buy the house for $68,000 but it appraises for well over $120,000. The house does need some work. One credit score is in the low 600 and the other is in the mid 700’s. With the house needing work would we qualify for a FHA loan? The seller does not want to do any of the work (this is the reason he is selling it for $68,000. We have $5,000 to put down.
      Thanks

  7. I am looking at a home the asking price is $80,000, the appraised value is $124,000. With a FHA loan could I borrow $110,000 in order to put new windows, an additional bath and an addition on it to make the master bedroom larger ?

    1. Hi Melissa:

      The type of loan you’re referring to would be an FHA 203K loan. Although we don’t often these types of loans at Quicken Loans, they do exist. Good luck!

      Thanks,
      Kevin Graham

  8. I have been told that my little house will not qualify for a FHA loan because I have no gutters and use my pellet stove as main heat. I live in a rural area and most people here heat with wood. . I would like to make some improvements on my house and would be interested in a reverse mortgage but I have been told that has to be a FHA loan? Where can I find a list of things that FHA loans require? Definitely not interested in another appraisal that costs me five hundred bucks.

    1. Hi George:

      FHA guidelines state you have to have a permanent heating system, but there is a provision that can be common to the area. I can tell you that reverse mortgages are insured by the FHA, so they have those appraisal requirements. FHA does have some public guidelines on this, but ultimately, I think you should be able to talk to one of our home loan experts before going much further to find out what’s possible. You can go ahead and call (888) 980-6716.

      Thanks,
      Kevin Graham

  9. Hi.. I am 47 yrs old i have a credit score of 518; at this time I have no credit cards and no car payment. I have a great career as an RN /administrater in nursing in cape coral, fl for the last 6 months and my annual salary is 70,000 . I am able to put 20 % down and am looking for a small cottage or single family home for under 100,000. Nothin fancy, but in great condition and something that meets my needs and life style. I cant see putting into rent anymore..i pay 900 a month for 2 yrs never being late. With my credit score how can i make this happen without having to wait? i want something that i can call mine..would any morgage company take a chance on me?
    Thank you,
    Christine

    1. Hi Christine:

      Unfortunately, there’s no way to do this without waiting. The major mortgage investors have strict regulations that we have to follow as an originator. You would at least need to get your credit score up to 580 and we would have more options for you once it got to 620. I recommend a few things:

      Check out our friends at QLCredit. You can get your VantageScore 3.0 score and report for free without affecting your score every two weeks. You’ll not only get your score, but you’ll get tips on how you can improve.

      We also have a blog post with a lot of great tips on how you can rebuild your credit score up. I hope this helps!

      Thanks,
      Kevin Graham

    1. FHA loans always require that you pay mortgage insurance premiums. That’s correct. You can avoid them by refinancing into a conventional loan once you reach 20% or more equity. Hope this helps!

      1. That is not what the information that Quicken states on this website. It says:

        “another appealing feature of FHA loans is that their mortgage rates and terms are competitive with conventional mortgages. Interest rates on FHA loans generally fall within .125 % of rates on conventional loans. Also, with an FHA loan, your mortgage insurance is funded into the loan, meaning a premium of 1.5% is added to the loan balance instead of being paid out-of-pocket.”

        So which is it? I can tell you that based on my mother’s recent refinance, that Quicken charged her for mortgage insurance, even though it was an FHA loan, with well over 20% in equity. If the mortgage insurance is funded into the loan, which is GUARANTEED BY THE GOVERNMENT…..They should not require mortgage insurance. If they do, then the 1.5% should not be added to the mortgage. The House appraised for $168k and the refinance amount was $125k. That is 34.4% equity. That seems a bit fishy to me. Does Quicken sell mortgage insurance? The cost of mortgage insurance, over 10 years is $10k. This is insurance that covers the lender, in the event the property goes in to foreclosure and the amount from the sale of the home, does not cover the existing loan. It is highly unlikely that it would happen, and except for the bubble that the banking industry caused in 2003-2008, hardly ever happened in the past. The mortgage industry is the only one who does not pay the cost of insuring its interests. The fact is, the same people who write mortgages, also sell mortgage insurance. You don’t get to shop around for it, or have any choice in the matter. The whole industry is a money grubbing leach on society if you ask me.

        1. Hi Robert:

          I’m going to look into that paragraph you’ve quoted because the only thing that can be funded into the loan balance as far as mortgage insurance is the upfront premium. You still have a monthly mortgage insurance premium to pay. We’re going to fix this. That being said, the dateline on this article is seven years old. The FHA has changed its policies regarding mortgage insurance several times since then. We do have plenty of updated content on FHA mortgages if you search the site, but for one example on mortgage insurance, check this out.

          To the rest of your comment, if you get an FHA loan, they are guaranteed by the government. One of the requirements of the Housing and Urban Development Department when it comes to FHA loans is that you have to pay for mortgage insurance. Any money we collect for mortgage insurance goes directly to the provider of the mortgage insurance. We don’t sell mortgage insurance and in the event you default, the money in the insurance policy is meant to protect the FHA from having to pay out too much.

          I’m going to get your comment to our client relations team and look into that paragraph. Thanks for reaching out!

          Thanks,
          Kevin Graham

  10. Where can I find more information on FHA 5/1 ARM loans – and is there THAT much of a difference in the interest rates in 2016 vs the 30 year?

    1. Hi Missy:

      You can find more information on our ARM loans page. Obviously, the rate difference depends on how much you looking to pay in prepaid interest, but you might be looking at the difference of around 0.25% – 0.375%. Hope this helps!

      Thanks,
      Kevin Graham

    1. Hi Ashley:

      You can apply online using Rocket Mortgage and get a preapproval that’s personalized for your goals and financial situation. If you would prefer to talk to someone and get started over the phone, you can call 888-728-4702.

      Thanks,
      Kevin Graham

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