A Federal Housing Administration loan, commonly called an FHA loan, is one of the most popular mortgage options today. The Department of Housing and Urban Development (HUD) manages these types of loans, which have been helping lower-income and new homeowners since the 1930s. The government insures FHA loans, and a bank or other agency-approved lender issues them.
Over the past 10 years, more than 275,000 families in Washington have used FHA loans to purchase their homes. In this article, we’ll go over the benefits and requirements of FHA loans in Washington State.
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FHA Loan: Washington State Benefits
FHA loans provide a great opportunity for those in Washington State to have a chance at owning their own home, especially if they don’t meet the stricter guidelines of conventional loans. Compared to other conventional loans, they require lower down payments on moderately priced homes and have more flexible requirements for applicants.
Additional FHA loan benefits include the following:
- Lower credit score requirements
- Interest rates that are lower than conventional mortgage interest rates
- Gift funds allowed
- Cosigners allowed
- Higher debt-to-income (DTI) ratio allowed
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FHA Loan Requirements
FHA loans are so appealing to new homebuyers and lower-income families because of their flexible loan requirements. To qualify for an FHA loan, you should meet the following stipulations.
Credit Score
To qualify for the low down payment of an FHA loan, your credit score needs to exceed 580. By comparison, conventional loans require a score of at least 620.
Down Payment
Down payments for FHA loans are the same in every state. The minimum down payment requirement is 3.5% of the purchase price. However, credit scores lower than 580 may require down payments of up to 10% of the total home price.
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DTI Ratio
DTI ratio is determined using how much income you bring in compared to your bills and monthly debt.
To calculate your ratio, add up your monthly bills (including rent or house payment). Then, divide the total by your monthly income before taxes. The result is your DTI ratio, which is in the form of a percentage.
The lower your DTI ratio, the better your chances are of being approved for home loans.
As far as FHA loans are concerned, you must not have a DTI ratio higher than 43%. However, certain compensating factors (such as money in savings, longer job history or excellent credit) can help you get approved with higher debt levels.
Mortgage Insurance
One major requirement for FHA loans is mortgage insurance. Regardless of lender, all FHA loans require up-front mortgage insurance premium and standard mortgage insurance premium. These insurance types function similarly to private mortgage insurance (PMI) for conventional loans and protect the lender if you cease making regular payments for some reason.
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Document Requirements
In terms of documents, you should anticipate providing current proof of income and proof of employment for the past two years in the form of pay stubs, bank statements and tax returns.
Residence Requirements
To qualify for an FHA loan, you must adhere to certain residence requirements. These state that the home you intend to purchase is meant to be your primary residence. You cannot use FHA loans for vacation homes and other secondary investment properties.
FHA Loan Limits for Washington State
Each state’s FHA loan limits are different, and some even differ among counties. The limits depend on the type of property you’re interested in and the average home sales value of the area where the property is located. The loan limits for a single-family residence in Washington start at $420,860 in rural counties and rise to $891,250 in the Seattle metropolitan area.
[Related: Mortgage Options With No (or Low) Down Payments]
Contact Seattle Mortgage Planners Today!
If you’re interested in finding out more about FHA loans in Washington or want to discuss your best route for refinancing your existing mortgage, Seattle Mortgage Planners can help. When you reach out to Seattle Mortgage Planners, you’ll have a team of experienced professionals to review and discuss your options. So, what are you waiting for?
Contact us today — we look forward to working with you!
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