FHA loans continue to be one of the most popular mortgage choices for homebuyers in Gainesville and Alachua County. The Gainesville housing market has remained robust and increasing with average home values hovering around $292,000.
First time home buyers make up a large percentage of Florida borrowers today and FHA loans provide needed low down payment options that are so important. The Federal Housing Administration introduced the FHA loan program in 1934 in order to bring some semblance of stability in the home loan industry as individual banks used their own internal approval guidelines that could require down payments as high as 50% and for very short terms, such as three to five years, requiring the borrowers to refinance the loan at the end of that initial period.
Lenders like to approve FHA loans because the lending guidelines, set by the FHA, are easy to follow and the individual loan comes with an inherent government guarantee. This guarantee compensates a lender for a loss on the loan should the home be foreclosed upon. As long as it is shown the lender approved an FHA loan using established FHA guidelines the lender receives compensation for the loss.
This guarantee is financed by the borrowers in the form of two separate mortgage insurance policies. The initial policy is referred to as the upfront mortgage insurance premium and is typically rolled into the loan amount and does not have to be paid for out of pocket. The second policy is an annual one that is paid in monthly installments (think PMI) during the course of the loan.
As with other government-backed mortgage programs, FHA loans are only used to finance an owner-occupied property and may not be used to finance a rental property, a second home or a vacation or beach property. FHA loans are allowed on not just a single-family residence but can also be used to finance a condo, townhome and multi-unit home as long as the borrowers occupy the property as a primary residence.
Underwriting guidelines for FHA loans are considered to be relaxed somewhat compared to say conventional loans with a 5% down payment. Lenders will pull a credit report from each of the three credit repositories, Experian, Transunion and Experian. The three-digit scores range from 300 to 850 with the higher score indicating better credit. Approved FHA lenders typically require a minimum credit score of 600 for the maximum 96.5% financing options. Sometimes lower credit score can be accepted if the buyer provides a larger 5% or 10% down payment. This can be compared to certain conventional mortgages that require a 680 credit score or higher.
FHA loans generally require the borrower has least two years of full-time employment history. Part-time employment can be used on a case-by-case basis if a two-year history can be verified as well as the likelihood the part-time income will continue into the future.
The lender uses the gross monthly income of all borrower(s) on the application and is verified by reviewing copies of the most recent pay stubs covering a 60 day period as well as the most recent two years W2 forms. For those that are self-employed, lenders will require the two most recently filed federal income tax returns, both personal and business. A business owner will also be asked to provide a year-to-date profit and loss statement.
Keep in mind, FHA loans only ask for a down payment of only 3.5% of the sales price. So for an average $200,000 home, the down payment would be $7,000. The down payment can also be a gift from approved sources like family, etc. Interest rates for FHA loans are as competitive as any other loan program and can be even more competitive when looking at a conventional loan with a 5% down payment.
The current 2023 FHA loan limits in Alachua County can range from $472,030 for a standard 1 living-unit home, and even higher for muti-unit properties. You can see the complete FHA loan limit list for Florida here.
Note: Buyers in more locations of Alachua County should also learn more about 100% USDA Rural Housing Loans. Like FHA, USDA Rural Housing loans are government-backed mortgages for eligible rural locations outside of Gainesville.