The Most Affordable FHA Loan EVER
The Federal Housing Administration just came out with the most affordable FHA loan ever! This could be an absolute game changer for many home buyers out there who are struggling to purchase an affordable home. There are 2 main reasons why this is such an affordable program and the biggest reason is, it’s a zero down loan option!
That’s right, there’s no down payment required, that’s right zero down payment. The other big change that just went into affect is FHA just slashed it’s mortgage insurance by 35% making FHA loans much more attractive to a lot of buyers and truly making this The Most Affordable FHA Loan EVER.
Now you might be asking yourself, how do I qualify – so I’m going to tell you. You might also be asking, what’s the catch or what are the drawbacks of this program, and I’m going to talk about those too.
My name is Chris O’Connell, I’m a mortgage loan officer, I help people get approved for home loans and this new zero down FHA loan is going to help a lot of people. Normally you would need 3.5% down to buy a house. For example, if you’re purchasing a $300k house, 3.5% would be $10,500.
But this program actually gives you this 3.5% down in the form of a forgivable gift – it does not need to be paid back. You can use this program to buy 1 or 2 unit properties, (single family homes, manufactured homes, town homes, condos and duplexes).
I really like the fact that you can use this program to buy duplexes, this is like the ultimate affordable house hack because you’re living in one unit and rent out the other. Plus you can own a home, building equity, and someone else is paying your mortgage!
How to Qualify for The Most Affordable FHA Loan EVER
You have to be a first time home buyer or have no ownership interest in a home in the last 3 years. Or you have to have household income under 140% of the area median income, so that would be $160,720 in the Twin Cities Minnesota area where I’m at, but you can look this up for your area.
If you don’t meet either of these criteria, that’s okay because if you’ve ever volunteered in the past or worked for a non profit, or were a teacher, nurse, or first responder at any time in your life, you qualify.
You do need a 620 credit score to qualify for this program. This is a pretty low bar compared to other down payment assistance programs which have higher minimum credit scores. So this is a relatively flexible program.
This also limits how high you can go on your debt ratio, 49% back end debt ratio and if that doesn’t mean anything to you, it’s slightly lower than the max 56% DTI for a normal FHA loan. In other words it limits your buying power a little bit.
The big drawback to this program is the rate, which is higher than a normal FHA loan. You should expect the rate on this program to be about 1% – 1.5% higher than a normal FHA loan. This is basically the cost of the loan – you don’t need any money down, and the tradeoff is a higher rate. Just like any loan there are fees and closing costs associated with this program and they could be slightly higher than a normal FHA loan, but this really depends on your particular situation.
How to Pay for Closing Costs on Any FHA Loan
This program and regular FHA loans allow you to get up to 6% of the purchase price in the form of seller paid closing costs. Therefore, you could essentially have the seller pay for all your closing costs. For example, if you’re buying a $300,000 house, the seller can actually give you $18,000 towards your closing costs, which is a huge amount and you’d typically wouldn’t need that much.
How Much is FHA Mortgage Insurance
FHA has mortgage insurance and it’s the same for everyone, regardless of credit score and it’s a percentage of your loan amount paid monthly. This amount was reduced by 35% in 2023. Keeping with our $300,000 example (for simplicity if we say the loan amount was $300k) your monthly MI payment would have been $212.50 per month – now it’s $137.50, saving you $75 per month.
FHA Gift is 100% Forgivable
You are allowed to refinance into a regular FHA or conventional loan after making 6 payments. If rates go down or if you can get a lower rate with a regular loan program, you can refinance, pay no penalty, and not pay any of this gift back, it’s totally forgivable.
This is probably the best zero down option out there, in fact for most people, it’s the only zero down home loan program out there. I would highly recommend taking a look at this option especially if you don’t qualify for other down payment assistance programs because a lot of that stuff requires a higher credit score or they have much lower income limits in order to qualify.
For tips on what to do before applying for an FHA loan, check out this video. If you are interested in using this program, my team and I would love to help you anywhere in the country, except Washington. You can reach out to me directly or apply online to start your pre approval, all of my information is listed in the description