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FHA loans are a great option for many borrowers who may not have the credit score or down payment amount needed to secure a conventional mortgage. This article will outline what the current loan requirements are for FHA borrowers in Washington in 2021.
The Federal Housing Administration (FHA) home loan program has been helping people buy homes since the 1930s. Today, it’s one of the most popular mortgage financing options for Washington State home buyers, but there are some general criteria you should be aware of when you consider this financing option.
Here’s an updated look at Washington State FHA requirements in 2021.
Washington State home buyers with good credit, manageable debt, and a down payment of 3.5% could be eligible for an FHA-insured home loan. Let’s take a closer look at the program requirements.
Consumer credit scores are an important requirement for Washington State FHA loans in 2021 Mortgage professionals look at these three-digit numbers as an indicator of how you’ve borrowed and repaid money in the past.
Generally, a higher credit score will increase your chances of FHA loan approval, while a lower score could hurt your chances. Further, a higher credit score can also help you secure a lower interest rate, which can effectively make your mortgage more affordable over the long run. The widely used FICO credit score system ranges from 300 to 850.
Related: Credit scores and home buyers
The Department of Housing and Urban Development (HUD) has specific guidelines and requirements regarding credit scores. According to their eligibility guidelines, lenders require borrowers to show a credit score of 580 or higher to take advantage of the 3.5% down payment option.
Speaking of down payments…
The minimum down payment required for a Washington State FHA loan is 3.5%. Specifically, That’s 3.5% of the purchase price or the appraised value (whichever is less) So the mortgage loan can account for 96.5% of the home’s value. This means the total loan amount can account for 96.5% of the purchase price.
A lower down payment amount is one of the main perks of FHA loans, as many buyers who are unable to come up with a more sizable down payment that conventional loans require can still realize their dreams of home ownership with less money up front.
That said, the more money you can put down, the lower your loan amount, which can save you in interest paid over the long run. Further, a higher down payment amount can help increase the odds of loan approval and can help you secure a lower interest rate.
Here’s some good news for borrowers with limited funds. HUD allows borrowers to obtain down-payment gift funds from family members or other approved donors. The donor must provide a “gift letter” that states they do not expect any form of repayment.
There are FHA requirements for the size of the loan as well. In Washington State, 2021 FHA loan limits range from $356,362 to $776,250 for 1-unit properties. They vary by county and are based on median home values within each county. That means pricier real estate markets, like those in the Seattle metro area, tend to have higher allowable loan limits.
A debt-to-income (DTI) ratio is a comparison between the amount of money a person earns and the amount he or she spends on monthly recurring debts.(SWAP) Debt ratios are another important requirement for Washington State FHA loans.
Generally speaking, HUD prefers borrowers to have a total or “back-end” debt-to-income ratio no higher than 43%. This means your total monthly debts (including the mortgage payment) should account for no more than 43% of your gross monthly income. That said, in some cases DTIs as much as 50% may be allowed.
But there’s some leeway here. Borrowers with significant cash reserves and/ or residual income after the mortgage payment have been made could be allowed to have higher debt ratios. HUD refers to these items as “compensating factors.” structure WC). In addition, if the total FHA loan will produce only a minimal increase in housing payments, higher debt ratios might be allowed. So, there are exceptions to this rule.
All mortgage programs require a lot of documents from the borrower, and FHA loans are no exception. Lenders use these documents to verify income, assets and debts, among other things. When applying for an FHA-insured home loan in Washington State, you will be asked to provide bank statements, tax returns, W-2 forms, and other financial documents.
Do you plan to use an FHA loan to buy a home? If so, we can help you. Sammamish Mortgage offers FHA loans for home buyers across Washington State. We’re a local mortgage company serving the broader Pacific Northwest region, including Washington state, Idaho, Colorado, and Oregon. We are proud to offer a wide variety of mortgage programs and products with flexible qualification criteria, and have been doing so since 1992. Please contact us if you have any questions or are ready to apply for a home loan.
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