Arizona FHA Loan Information and Qualifications
FHA loans are mortgages insured by the Federal Housing Administration. These types of loans are very popular and are mostly used by first-time homebuyers since they have more relaxed underwriting requirements when compared to conventional loans. A borrower can qualify for the Arizona FHA loan with a 3.5% down payment and a credit score of 580 and above. If a down payment of 10% can be raised, the credit score can be as low as 500 to 579 which cannot be done on a conventional loan. Note that most lenders will set their own credit score minimums.
Arizona FHA Loan limits by county, click here!
The FHA program was started in the 1930’s due to the defaults and foreclosures after the Great Depression. This program was designed to give lenders enough insurance and help in the stimulation of the housing market by making loans affordable and accessible to people with low credit scores and low down payments. The federal government insures loans provided by private lenders who have been approved to reduce the risks involved in the case of a default on mortgage payments. This gives people with low credit scores and small down payments access to loans and the opportunity to own a home.
What Are The Benefits Of FHA Loans?
FHA loans are typically the easiest to qualify for. Borrowers require low down payments and credit scores that are less than perfect. With 3.5% down payment and a credit score of as low as 500, a borrower can access FHA loans and start the process of owning a home.
Another important benefit is that an individual who has undergone foreclosure or bankruptcy can still qualify for FHA loan with much less seasoning time than on a conventional loan. FHA will allow borrowers with a previous foreclosure to get financed 3 years after the foreclosure and sometimes sooner if there were extenuating circumstances. FHA will also look at a borrower who is currently paying on time in a Chapter 13 Bankruptcy for one year or is two years seasoned from the discharge of a Chapter 7 Bankruptcy.
Since FHA loans do not carry the strict requirements of conventional loans, you will need two types of mortgage insurance. One of the premiums is to be paid upfront or be incorporated into the mortgage. The other one is a monthly PMI included into your monthly mortgage payment.
The Upfront mortgage insurance premium (UFMIP) is the one-time upfront premium payment. This is a 1.75% of the loan amount that needs to be paid regardless of the borrower’s qualifications. For example, if the Loan is $250,000, the UFMIP will be 1.75% of that amount which is equal to $4375. This sum can be paid upfront by the borrower or can opt to have it rolled on top of the loan amount
Annual Mortgage Insurance Premium is an annual insurance fee charged monthly that will be included in the monthly loan payment. This is a percentage of the loan amount and depends on the length of the loan, loan size, and the loan-to-value ratio. The monthly percentage falls between 0.8% and 1.05% of the loan amount generally.
How Long Can The Mortgage Insurance Be Paid?
The mortgage insurance premium depends on the loan-to-value ratio and amortization term, on the loan’s origination date. For the loans that possess case numbers assigned on or after 3rd June 2013, borrowers will have to pay the insurance premium the entire loan term if the loan-to-value ratio is greater than 90% during the originated time. For cases where the loan-to-value ratio is 90% or lower, the borrower will pay the insurance for the mortgage term or 11 years, whichever comes first.
FHA Loan Requirements
The FHA loan requirements are provided by the Federal Housing Administration. You have to check the FHA website for a complete list of requirements though we have a few of the most important:
- You should have a steady employment or have worked for the same employer for the past two years
- You need a valid Social Security number, have lawful residency in the US and be of legal age to sign a mortgage in Arizona.
- You should be in a position to raise the 3.5% down payment though this amount can come as a gift from a charitable organization, employer or a family member.
- New FHA loans can only be accessed for primary residency occupancy.
- To enjoy the 3.5% down payment, you need a credit score of over 580 and above. This does not, however, lock you out if you have a lower credit score. With a credit score of 500 to 579, you can still get an FHA loan as long as you can provide a 10% down payment.
- You should be at least two years out of bankruptcy and have re-established good credit score. If the bankruptcy was caused by elements out of your control and have shown proper money management for over a year, there might be exceptions.
- You should be three years out of a foreclosure and re-established a good credit score. Lesser time will be considered under extenuating circumstances.
FHA Loan Limits
The FHA has maximum limits to the mortgage you can access based on the county within the property is located. It is important to check out what your limits are in Arizona. These limits depend on the county and area where you are buying the home. Click here for a list of FHA COUNTY LIMITS IN ARIZONA