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Guide to Getting a Federal Housing Administration (FHA) Mortgage Loan

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Saving up the traditional 20% for a mortgage down payment is the kind of financial obstacle that can bar first-time homebuyers with minimal savings from becoming homeowners. The government-backed Federal Housing Administration (FHA) mortgage is one solution for those who want to buy a home but can’t pull together a large down payment.

FHA mortgages are home loans funded by FHA-approved lenders and insured by the government.

The government backing protects lenders from loss if borrowers default. Because of this protection, lenders can be more lenient with their qualifying criteria and can accept a significantly lower down payment.

You can get approved for an FHA mortgage with a minimum credit score of 500, and you only need to put 3.5% to 10% down to buy a home.

How much can an FHA mortgage help you?

For a $150,000 home, a 20% down payment would mean you would need to bring $30,000 (along with other closing costs) to the table. That’s no small chunk of change. By comparison, an FHA mortgage would require anywhere from 3.5% to 10% for a down payment, which comes out to $5,250 to $15,000.

In this post, we’ll cover the following topics to explain the FHA mortgage, including:

  • FHA mortgage terms
  • FHA qualifying criteria and restrictions
  • FHA costs and mortgage premiums
  • FHA mortgages vs. conventional mortgages
  • How to shop for an FHA mortgage

FHA mortgage terms

There are both 15- and 30-year fixed-rate and adjustable-rate FHA mortgage options. With a fixed-rate FHA mortgage, your interest rate is consistent through the loan term. However, your monthly mortgage payment may increase based on your homeowners insurance, mortgage insurance premium, and property taxes.

Adjustable-rate FHA mortgages are home loans where the rate stays low and fixed during an introductory period of time such as five years. Once the introductory period ends, the interest rate will adjust, which means your monthly mortgage payments may increase.

A unique situation where signing up for a low, adjustable-rate FHA mortgage could make sense is if you plan to sell or refinance the home before the introductory period ends and the interest rate can change. Otherwise, a fixed-rate FHA mortgage has predictable mortgage payments and may be the way to go.

Qualifying criteria and restrictions

Although the FHA home loan is particularly appealing for first-time homebuyers, it’s not only open to first-time purchasers. Repeat buyers planning to use the home as a primary residence may qualify for an FHA home loan as well.

Besides the low down payment, an undeniable benefit of the FHA mortgage is the low credit score requirement. You may qualify for 3.5% down payment with a credit score of 580 or higher. You can also qualify with a credit score lower than 580, but you’ll have to make a 10% down payment.

Debt-to-income (DTI) ratio is another key metric lenders consider in addition to your credit score to determine whether you can afford a mortgage. DTI measures the amount of debt you have compared to your income, and it’s expressed in a percentage.

Lenders look at two debt-to-income ratios when determining your eligibility — housing ratio or front-end ratio and your total debt ratio or back-end ratio.

Your front-end ratio is what percentage of your income it would take to cover your total monthly mortgage payment. Lenders like to see your front-end ratio below 31% of your gross income.

Your back-end ratio shows how much of your income is needed to pay for your total monthly debts. Lenders prefer a back-end ratio of 43% or less of your gross income.

FHA limits

The FHA mortgage can be used for both single-family and multi-family homes, but there are loan amount maximums that vary by state and county.

For an example, in Fulton County, Atlanta, the maximum loan for a single-family house is $342,700. You can find the loan limits for all states and counties here.

 

FHA mortgage costs and mortgage insurance premium

Just like a traditional mortgage, an FHA home loan has closing costs. Closing costs are the costs necessary to complete your transaction, such as appraisals and home inspections. However, you may be able to negotiate to have some of these costs covered by the seller.

The real expense of the FHA home loan lies in the mortgage insurance premiums.

At first glance, the FHA mortgage probably seems like the ultimate hack to buying a home with minimal savings. The flip side to this is you need to pay mortgage insurance premiums to cover the lender for the lower down payment.

Remember, FHA-approved lenders offer mortgages that require less money down and flexible qualifying criteria because the Federal Housing Administration will cover the loss if you default on the loan. The government doesn’t do this for free.

FHA mortgage borrowers must “put money in the pot” to cover the cost of this backing through upfront and annual mortgage insurance premiums. The upfront insurance premium for the FHA mortgage is currently 1.75% of the loan amount, and it can be rolled into your mortgage balance.

The annual insurance premium is broken into a payment that you make monthly. The annual premium for mortgage insurance can be up to 1.05% based on your loan term length, loan amount, and loan-to-value ratio (LTV).

LTV is a percentage that compares your loan amount to your home’s value. It also represents the equity (or lack of equity) you have in the property.

For example, putting 3.5% down means your LTV would be 96.5%. In other words, you have 3.5% equity in the home, and your loan is covering the remaining 96.5% of the home value.

Here’s the annual mortgage insurance premium on a 30-year FHA mortgage (for loans less than $625,000):

  • LTV over 95% (you initially have less than 5% equity in the home) – 0.85%
  • LTV under 95% (you initially have more than 5% equity in the home) – 0.8%

As you can see, starting off with less equity (or a smaller down payment) will cost you more in insurance premiums. You can expect to pay 0.85% in annual mortgage insurance premiums if your down payment is 3.5% on the 30-year mortgage.

Unfortunately, if your LTV was greater than 90% at time of origination, insurance premiums tag along for the entire loan term or 11 years, whichever comes first. There are exceptions if you have an FHA mortgage that was taken out before June 3, 2013.

How does the FHA home loan compare to conventional home loans?

Government-backed home loans like the FHA mortgage are part of special programs that serve borrowers that can’t qualify for a traditional mortgage.

At the other end of the spectrum is the conventional mortgage or the “Average Joe” of mortgages.

These traditional mortgages are offered by lenders and banks backed by Fannie Mae and Freddie Mac’s mortgage standards. Fannie Mae and Freddie Mac are government-sponsored agencies that buy loans from mortgage lenders and banks that conform to preset requirements.

Since conventional mortgages are loans eligible to be purchased by Fannie Mae and Freddie Mac, the qualifying criteria bar is usually set higher. For instance, you should have at least a 620 credit score to qualify for a fixed-rate conventional loan. Although, credit score minimums vary by lender, and a score above 620 will be necessary for the most competitive interest rates.

A misconception about the conventional mortgage is that borrowers must have 20% for a down payment to qualify. Mortgage lenders may accept less than 20% down for a conventional mortgage if you have a high credit score and pay their version of mortgage insurance premiums, which is called private mortgage insurance (PMI).

PMI is a private insurance policy that protects the lender if you default. Be careful not to confuse the two types of insurance policies.

If you have PMI on a conventional mortgage, you’re able to request a removal of insurance payments when you build up 20% equity in your home.

On the other hand, the mortgage insurance premiums for new FHA mortgages (post 2013) can’t be removed unless you refinance.

When to choose a conventional mortgage instead

Putting down less money with the FHA mortgage can be a shortcut to homeownership if you don’t have much cash saved or the credit history to get approved for a conventional mortgage.

But, the convenience doesn’t come without strings attached and the additional insurance costs can follow you for the entire loan term. This can get costly.

Furthermore, putting a small sum down on a home means that it will take you quite some time to build up equity. A small down payment can also increase your monthly payments. Homebuyers with a strong credit score should consider saving a bit more money and shopping for a conventional home loan first before thinking the FHA home loan is the only answer to a limited down payment.

You may be able to qualify for a conventional home loan with PMI if you have a down payment of 5% to 10%. A conventional home loan with PMI may not require the same upfront insurance payment as the FHA home loan, so you can find some savings there. Plus, you’re capable of getting rid of PMI without refinancing.

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How to shop for an FHA mortgage

If your present credit score and savings make you ineligible for a conventional home loan, the FHA home loan is still a viable option to consider for financing. Just make sure you understand the implications of the extra cost.

Like a conventional mortgage, you need to shop around with multiple FHA-approved lenders to find the most competitive rate. If you’re unfamiliar with FHA-approved lenders in your area, you can go to the HUD website to find a few.

Don’t rush to a decision. If you’re not sure which option (FHA or conventional mortgage) will be the most cost effective for you, ask each lender you shop with to break down the costs for a comparison.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Taylor Gordon
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Taylor Gordon is a writer at MagnifyMoney. You can email Taylor here

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Mississippi First-Time Homebuyer Programs

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Intro

New homebuyers looking to buy in Mississippi, home of the moody blues and blooming magnolia trees, may be able to find local assistance programs to help make the purchase possible. These programs target first-time homebuyers by helping with down payments, closing costs and monthly payments.

Mississippi also offers counseling services that cover anything from buying a home to foreclosures, along with educational courses ideal for first-time buyers. If you’re interested in buying in Mississippi and want to learn more about the various programs offered, read on to determine which might be a good fit for you.

Mississippi first-time homebuyer programs

The Mississippi Home Corp. (MHC) offers several programs geared toward helping first-time homebuyers purchase a home. The agency first came about in 1989, with the help of the Mississippi Home Corp. act, to provide affordable and safe housing to its residents. These programs can offer anything from deferred loan payments to tax credits that can help save extra money.

Eligibility for Mississippi assistance

While all of these homebuyer assistance programs have individual eligibility rules and regulations, most tend to look at a few major criteria, such as a homebuyer’s income, credit score, legal residency and previous homeownership.

Smart Solution Mortgage

Smart Solution Mortgage teams up with participating lenders to offer loans with competitive rates and down payment assistance. It also provides its Smart Solution Second, which is geared toward those who need a second mortgage by offering 3.5% down payment.

What is it?

  • A 30-year fixed rate
  • Offers cheaper mortgage insurance premiums
  • Offers the option to combine a Mortgage Credit Certificate (MCC) with the possibility of claiming 40% of mortgage interest (up to $2,000 per year) as credit on federal income taxes and using the rest as a deduction

Requirements

  • Must be the buyer’s primary residence
  • Household income cannot be more than $95,000 per year
  • Must be U.S. resident
  • Minimum credit score of 620 (for Federal Housing Administration [FHA], U.S. Department of Agriculture [USDA] or U.S. Department of Veterans Affairs [VA] loans and conventional loans)
  • The property (new or existing) must be in Mississippi and should be one of the following: single-family home, condominium, townhouse or duplex

MRB 7

Mortgage Revenue Bonds program (or MRB 7) helps ease the burden of coming up with a down payment by providing $7,000 to be put toward it.

What is it?

  • A 30-year fixed rate mortgage
  • The buyer has various loan options (FHA, VA, USDA Rural Development and Fannie Mae/Freddie Mac Loans)
  • No restrictions on liquid assets
  • Offers down payment assistance
  • Also offers a 10-year deferred second mortgage with no interest, which can be forgivable after 10 years

Requirements

  • Must be a first-time homebuyer (not allowed to have owned a residence in the past three years), but veterans and residents in “target areas” such as Pike and Sharkey counties, are exempt.
  • Need to meet credit requirements and loan-underwriting requirements, depending on the specific product.
  • Income level cannot exceed maximum in the county in which you plan to live. For example, Clarke County residents with a household of one or two cannot exceed $52,800 in income, and those with three or more max out at $60,720.
  • Must be a U.S. resident.
  • The property must be in Mississippi and can be either a new or existing single-family home, condominium or townhouse.
  • Purchase price must not exceed maximum for specific county.

Housing Assistance for Teachers (HAT)

The Housing Assistance for Teachers Program (HAT) offers homebuying assistance to teachers who want to live in rural Mississippi, where there is a shortage of educators.

What is it?

  • A 25- or 30-year fixed-rate loan that provides up to $6,000 toward closing costs
  • Offers down payment assistance
  • Has no income limits (except when pairing HAT with another MHC loan)

Requirements

  • Must be a teacher for three years in a school district with a shortage of educators.
  • Must meet certain credit requirements.
  • Required to pay at least 1% of the property price for the down payment along with one month’s reserves.
  • The property location needs to be within an eligible county, such as Bolivar or Marshall. Loan-to-value ratio (LTV) cannot be more than 97%.
  • Must have an acceptable credit score (required credit score varies depending on LTV).
  • Must have mortgage insurance, depending on LTV.

Mortgage Credit Certificate (MCC)

The Mortgage Credit Certificate (MCC) can provide a tax credit up to 40% of the loan’s annual interest (actual amount depends on interest already paid), allowing for a possible 60% to be used as a deduction.

What is it?

  • A tax credit of up to 40%
  • The credit can be combined with MHC’s other programs and various loan products (conventional, FHA, VA and RD financing)

Requirements

  • Must be a first-time homebuyer (those in “target areas,” including Benton and Copiah, are exempt).
  • Can’t exceed household income limits, which vary by county. Clay County, for example, cannot exceed $63,360 for a household of one to two, or $73,920 for three or more.
  • The tax credit cannot be more than $2,000 per year.
  • Must live in a single-family home as permanent residence, and all manufactured homes need to be approved by the U.S. Department of Housing and Urban Development (HUD)
  • Purchase price must not exceed limits for specific county.
  • Must pay a $300 non-refundable reservation fee.
  • Must provide property sales contract and federal income tax returns (from the last three years).
  • Must complete a homebuyer education course.

How to apply

To apply for any of the homebuyer assistance programs with the Mississippi Home Corp., you will need to work with a participating lender. You can start this process by searching the agency’s website for a participating lender and reach out to them directly.

These lenders will be able to match you with the specific program(s) that work best for your needs, depending on your financial profile and credit history. Your income and credit score will be considered, along with the county where you are looking to purchase your new home.

National first-time homebuyer programs

Mississippi has many different programs that can come in handy when you’re looking to buy your first home there. However, the state may not have the perfect program that works for you. If that is the case, you may want to look into other programs that are available nationwide. Some of these programs include the USDA Rural Development program targeting lower-income residents who want to buy a home in a specified rural area, along with Habitat for Humanity, the FHA and the VA. Learn more about these programs by checking out LendingTree’s general guide to first-time homebuyer programs. LendingTree owns MagnifyMoney.

This article contains links to LendingTree, our parent company.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Carissa Chesanek
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Carissa Chesanek is a writer at MagnifyMoney. You can email Carissa here

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Kansas First-Time Homebuyer Programs

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

If you’re drawn to midwestern friendliness, wide open spaces and affordable homes, there’s no place like Kansas to settle down. And if you need help coming up with a down payment on your first home, or you want to keep your mortgage affordable, the state may have a program for you.

The Sunflower State offers one first-time homebuyer program that provides assistance with your down payment and other homebuying costs in the form of a forgivable loan. And to help increase the number of homebuying assistance options, two Kansas counties joined to create another statewide program open to first-time homebuyers. Because the state has fewer programs than many other states, Kansans might also want to look at federal and local first-time homebuyer programs to increase the chances of finding a program that fits their needs.

In January 2019, we researched first-time homebuyer programs in Kansas. This included reviewing the Kansas Housing Resources Corporation website and other state resources. We put together the information you need to know in this guide.

Kansas first-time homebuyer programs

The first program on our list is offered through the Kansas Housing Resources Corporation (KHRC), a public corporation that runs housing programs in Kansas. The mission of the KHRC is to increase the availability of affordable, quality housing for Kansas residents. The organization oversees more than 25 affordable housing programs, one of which is designed to help first-time homebuyers.

Another statewide program open to first-time homebuyers is sponsored by two Kansas counties, Sedgewick and Shawnee. The program offers grants of up to 5% of a home’s purchase price to help with closing costs and down payment, along with extra subsidies for very low-income homebuyers. The program also now offers a zero-interest second mortgage that is forgivable after one year for homebuyers who qualify.

Requirements for Kansas assistance

Homebuyers who want to use a Kansas first-time homebuyer program must have a household income that falls within program requirements and must be buying a home within an eligible area in the state.

First Time Homebuyer Program

The First Time Homebuyer Program (FTHB) from the state of Kansas offers assistance with down payments, closing costs and legal fees to help first-time homebuyers who meet income requirements. Homebuyers who stay in their home for 10 years or longer may not have to repay any of the funds they receive.

What is it?

The First Time Homebuyer Program offers

  • A subsidy divided into two equal parts: a loan that may be forgiven over five years if the amount is under $15,000 or 10 years if it is $15,000 or more, and a loan that must be repaid on the sale of the house only if the house is sold within 10 years of the date of purchase.
  • A loan for 15% to 20% of the total purchase price of the home, depending on the homebuyer’s income.

Requirements

In order to be eligible to participate in the First Time Homebuyer Program, you must

  • Have not owned a home in the past three years OR be either a manufactured home owner, a single parent or a displaced homemaker. A displaced homemaker is defined as someone who has worked mainly in the home without pay and is experiencing difficulty finding paid employment.
  • Have income at or below 80% of the area median income (AMI).
  • Not be buying within the city limits of Kansas City, Lawrence, Topeka or Wichita.
  • Not be buying within the limits of Johnson County, which includes the cities of Olathe and Overland Park.
  • Put down the greater of 2% of the purchase price or $500 with your own funds.
  • Live in the purchased home as your primary residence.

How to apply

To apply for the First Time Homebuyer program in Kansas, you’ll need to contact a KHRC-approved lender that participates in the program. The lender you choose will ask questions to determine whether you qualify for the First Time Homebuyer Program and will walk you through the application process.

If you’re planning to buy in one of the top six largest cities in Kansas that are excluded from the program, you may want to check to see if the local government offers a first-time homebuyer program. For example, the City of Wichita offers the HOMEOwnership 80 program for first-time homebuyers buying in certain areas, and Topeka offers the Topeka Opportunity to Own (TOTO) program for first-time homebuyers.

Learn more

Kansas Housing Assistance Program

The Kansas Housing Assistance Program (KHAP) was created by two Kansas counties, but residents across the state can take advantage of it. It’s available to first-time and repeat homebuyers with low or modest incomes. In addition to a 30-year mortgage, it offers a grant to help with home down payment or closing costs. A new enhancement to the program (see Kansas Kick Start below) also offers a forgivable second mortgage to qualifying first-time homebuyers.

What is it?

The Kansas Housing Assistance Program offers

  • A 30-year fixed rate mortgage
  • A grant of up to 5% of the home purchase price to help with closing costs or a down payment on the home. Grant percentage varies based on whether you get a conventional loan (up to 5%), FHA loan (4%), USDA loan (2%), or VA mortgage (2%).
  • An extra subsidy on conventional loans of up to $1,500 (for buyers who are above 50% but below 80% of the area median income [AMI]) or $2,500 (for buyers below 50% of the AMI).

Requirements

You do not need to be a first-time homebuyer to qualify for KHAP. However, you must

  • Have a credit score of at least 640 (for conventional, VA and USDA loans) or at least 660 (for FHA loans).
  • Buy either a detached single-family home, a condo, a townhome or a duplex (with one unit occupied by you).
  • Meet income limits that vary based on the location of your home and the type of mortgage.
  • Be buying a home priced at $453,100 or less.

How to apply

To get started with KHAP, contact a participating lender. The lender will ask questions to determine whether you qualify and will help you apply for the program. Find a lender on the KHAP list of lenders.

Kansas Kick Start

Kansas Kick Start is a new offer that is part of the Kansas Housing Assistance Program and can provide additional funds to first-time homebuyers. It offers a flat sum as a forgivable second mortgage.

What is it?

The Kansas Kick Start enhancement to the KHAP program offers

  • A flat amount of $7,000 as a zero-interest second mortgage that is forgivable in one year.
  • The option to be used along with a 1% or 2% KHAP grant.
  • The option be “stacked” with other funding sources.

Requirements

To qualify for Kansas Kick Start, you must

  • Be a first-time homebuyer.
  • Use a conventional loan to purchase your home.
  • Meet Kansas Kick Start income requirements, which vary based on location and household size.
  • Be buying a home that meets Kansas Kick Start home price limits.
  • Complete a homebuyer education course.
  • Have a credit score of 640 or higher for Freddie Mac HFA Advantage loan.
  • Be buying a single-family property.

How to apply

As mentioned under the Kansas Housing Assistance Program, you must go through a participating lender. To get started, check the KHAP list of lenders.

National first-time homebuyer programs

Many states offer a variety of first-time homebuyer programs to allow homebuyers to find a program that fits. Because Kansas offers only one program specifically targeted at first-time homebuyers, Sunflower State buyers might want to expand their options by looking at federal first-time homebuyer programs. If you’d like to see what federal programs are open to you, check out LendingTree’s guide to first-time homebuyer programs before you go looking for your dream home. (LendingTree owns MagnifyMoney.)

This article contains links to LendingTree, our parent company.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Allie Johnson
Allie Johnson |

Allie Johnson is a writer at MagnifyMoney. You can email Allie here

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