FHA loans are a great option to help borrowers throughout the Baltimore area, and in Maryland, to buy a home, or refinance a current mortgage. This is true even if your credit score does not qualify for other conventional mortgage loans, or your downpayment savings are limited. If you’re in the market to purchase a home, an FHA loan is a great solution for financing your primary residence.
The Benefits of FHA Loans
There are several benefits of financing a home purchase with an FHA loan, including:
- Competitive interest rates
- Lower down payment options
- Lower credit score requirements
- Higher debt-to-income ratios allowed
- Eligibility to use gift funds
- Seller contributions are allowed
FHA Down Payment
An FHA loan requires a down payment but is significantly lower than most conventional loans. The minimum down payment requirement for an FHA loan is 3.5% of the purchase price and is the same in every state. However, if your credit score is below 580, then the down payment requirement will be 10%.
Buyers can also use gift funds to help cover the necessary down payment.
Down Payment Assistance
Down payment assistance can also be obtained through various state programs. The Maryland Mortgage Program offers resources and programs to support homebuyers. While lenders will accept these downpayment assistance funds, the lender will not facilitate obtaining them. These programs require the home buyer to explore, apply, and arrange to obtain the available assistance.
FHA Loan Requirements
Whether buying a home with an FHA loan in Baltimore, throughout Maryland, or elsewhere in the country, the FHA loan requirements are all the same. The following basic FHA loan requirements must all be met to be approved for an FHA loan. FHA loans are not available for financing investment properties.Your lender will guide you through these requirements and address any questions you may have.
- Purchasing the home as your primary residence
- Have a minimum down payment of 3.5% (10% if credit score is below 580)
- Minimum FICO score requirement of 500
- Maximum debt-to-income ratio of 43% with exceptions up to 56%
- 2-year employment history with some exceptions allowed
- Fully document your income for the past two years
- No bankruptcies or foreclosures in the past two years
- Mortgage Insurance Premium (MIP) is required for every FHA loan
FHA Loan Limits
There are maximum loan amount limits for an FHA loan. In Maryland, every county has a specific maximum loan limit. These vary by county due to the unique markets throughout the state and are set based upon the average home sales value in that county. Your lender and realtor can guide you through the specific FHA loan limits, but the base limit in many of the Maryland counties is $420,680 for a single-family residence.
Other FHA Loan Options
FHA 203k Loans
If you’re not buying a new home, and remodeling or rehabilitation work is necessary on the property, an FHA loan could still be a viable option. FHA 203k loans are a great program designed for these instances. With an FHA 203k loan, you can borrow the money needed to purchase the home, while also financing and borrowing the additional funds to complete the remodeling work for the home.
FHA Streamline Refinance
Existing homeowners can leverage the FHA loan program to refinance their current mortgage on the primary residence. The FHA streamline refinance program can help existing homeowners with refinancing for a lower rate. One key benefit of this program is the ability to eliminate some of the refinance costs, such as an appraisal, and reevaluate your mortgage insurance premium.
Other Important FHA Loan Information
To obtain an FHA loan, an appraisal and inspection of the property are required before your loan can be approved. There are clear requirements and guidelines set forth by the FHA that must be met before your loan can close. These guidelines are in place to help protect the home buyer and to ensure you are moving into a home that is functional and most importantly safe to live in.
There are two great benefits relating to the funds used for obtaining an FHA loan. FHA loans do allow for funds to be provided to the borrower as a gift that can be used to cover your down payment. There is a maximum amount allowed and the gifted funds must come from a relative as approved by the lender. Discuss the potential for any gifted funds with your lender so they are aware and can facilitate the necessary documentation for tracking.
An FHA loan also allows for seller assistance. Seller assistance is when the home seller agrees to pay for some of the home buyers closing costs. Seller assistance can cover up to 6% of the home purchase price.
Ready to explore an FHA Loan to explore your home?
Our mortgage experts will walk you through the entire home financing process and answer any questions you have. When you’re ready to start home shopping, we’ll get you pre-approved for a loan so you’re ready to buy when you find that house you want to call home.
While we predominantly serve home buyers throughout the central Maryland market of Baltimore and surrounding counties, we are able to support the FHA mortgage loan needs of borrowers throughout the mid-Atlantic market in Maryland, Washington, DC, Virginia, Delaware, Pennsylvania, New Jersey, and New York.