For those with less than perfect credit or a small down payment, an FHA loan in Maryland can be an opportunity to purchase a home and get out of the world of renting. The Federal Housing Administration (FHA) provides insurance that allows lenders to assume the greater risk associated with lending to different borrowers with factors that make them unable to get a conventional mortgage. Here are a few of the requirements to determine if you qualify for an FHA loan in Maryland.
Primary residence: The home you are purchasing needs to be your primary residence because FHA loans are not available to buy investment properties, such as rental homes, vacation homes, or secondary home.
Credit Score: Your credit score needs to be at least 580. If your credit score is between 500 and 579, then you may still be able to qualify for an FHA mortgage, but you may be required to provide a higher down payment of 10%. The higher your credit score is the better chance of getting a lower interest rate. Therefore, before going in to apply for your FHA mortgage, pull your credit report, and get any errors corrected. Doing so can be a boost for your credit score overall.
Low Down Payment: Under the FHA loan program in Maryland, you will need to provide a 3.5% down payment, although it can be higher if you have the funds. However, with this low a down payment, you will have to pay a Mortgage Insurance Premium (MIP) as part of your monthly payment. There will also be an Upfront Mortgage Insurance Premium (UPMIP) that is part of your closing costs.
Debt to Income Ratio: In order to be approved for an FHA loan in Maryland, you need to have a debt-to-income ratio of no more than 43%. While there are compensating factors that can result in getting approved at a higher level, this is not standard. Credit cards, student loans, and other consumer debt all factor into this ratio.
FHA Loan Limits: If you opt to use the FHA loan program in Maryland to fund your home purchase, then be prepared for mortgage limits. Simply put, the FHA loan program sets limits by county for how large a mortgage you may receive. In some states and counties, that number can be significantly higher than others. Before choosing a home and putting in an offer, you need to make sure that you are within those limits.
Proof of Income: As part of the mortgage process, you will need to provide evidence of your income for the last two years. This process can include bank statements, pay stubs, W-2s, tax returns, and 1099s. Additionally, if you want to include child support as part of your income for paying the mortgage, you need to demonstrate that it is being paid regularly. This process will demonstrate that you have been consistently employed for two years, thus satisfying any requirements regarding job history.
It is also important to note that as part of the FHA loan program, you may be able to receive a financial gift from family or friends to be used as part of your down payment. Talk with your lender to determine if you can take advantage of that provision. Additionally, FHA loans provide the seller’s option to pay a portion of the closing costs, but there is a limit to that amount per their guidelines.
Contact us today to discuss your options under the FHA loan program in Maryland and determine if you qualify.