Are you thinking about using an FHA loan to buy a home in Seattle, Washington in 2017? Do you have questions about how the program works, or what it takes to qualify? You’ve come to the right place. Our Seattle FHA loan guide for 2017 addresses some of the most common questions among home buyers who are considering the program.
What Is an FHA Loan?
The Federal Housing Administration (FHA) loan program has been helping home buyers across the country since the 1930s. It was created in response to the Great Depression. Through this program, eligible home buyers can qualify for financing up to 96.5% of the purchase price.
The FHA does not lend money to Seattle home buyers directly. They insure loans made in the private sector, and this federal backing is what makes the program unique. As a result of this insurance, lenders are often more flexible in terms of borrower eligibility criteria.
What Are the Benefits?
Seattle FHA loans are particularly popular among first-time home buyers, because they allow for a low down payment of 3.5%. Additionally, the credit qualification guidelines can be a bit more lenient with FHA loans, compared to conventional mortgage programs. The program tends to be more forgiving of past credit and debt-related issues.
Another benefit of using a Seattle FHA loan is that it’s assumable. This means that if you sell the home down the road, the seller could essentially assume your mortgage loan and take over payments. This can be a real enticement to help you attract a buyer, especially if the rate on your existing FHA loan is lower than current rates at the time of the sale.
What Are the Eligibility Requirements?
The minimum required down payment for a Seattle FHA loan is 3.5% of the purchase price or the appraised value, whichever is less. Inversely, that means the home buyer can finance up to 96.5% of the purchase price.
Department of Housing and Urban Development (HUD) guidelines state that FHA loan borrowers should have a credit score of 580 or higher. That’s if the borrower wants to take advantage of the 3.5% down payment option.
There are debt-related guidelines as well, but these have some built-in flexibility. As a general rule, HUD prefers borrowers to have a total debt-to-income ratio of 43% or less. This means the borrower’s combined monthly debts (including the mortgage payment) should use up no more than 43% of monthly income. But there are exceptions to this rule. For instance, if the borrower has successfully managed payments in the past that were similar to the estimated loan payments on the FHA loan, higher debt ratios might be allowed.
Related: FHA requirements in Washington State
How Do I Apply for an FHA Loan in Seattle?
In order to apply for this type of financing, you must submit an application with a Seattle FHA mortgage lender. This is a mortgage company that has been approved by HUD to participate in the program. The application process itself is similar to a conventional home loan, with the addition of a few FHA-specific documents.
During this process, you’ll be asked for a variety of documents relating to your income, assets and debt. These include (but are not limited to) recent bank statements, tax returns and W-2 forms, pay stubs and verification of employment.
In a hot market like Seattle, it makes sense to get pre-approved for an FHA loan, before you start house hunting. This will make you a more competitive home buyer, and will increase your chance for success.
How Much Can I Borrow?
Like many mortgage programs, there are limits to how much you can borrow when using a Seattle FHA loan. The program is geared toward home buyers purchasing properties in the low to middle price range. It’s not intended for luxury homes on the high end of the pricing spectrum.
In 2017, the maximum loan limit for a single-family home in the Seattle metro area went up to $592,250. That was an increase of more than $50,000 from last year’s limit of $540,500. This applies to the entire metro area, including all of King, Pierce and Snohomish counties. Learn more about these limits.
This doesn’t mean that all Seattle FHA loan borrowers will qualify for financing up to $592,250. That’s just the official program cap. The amount you are able to borrow will depend on your current income situation, your credit history, and other factors.