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Affinity Title

MORTGAGE KNOWLEDGE CENTER

PenFed Mortgage with Confidence

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  • Getting a Mortgage
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  • VA Loans
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image

FHA LOANS

Rates starting at % (APR %)¹

 

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

  1. Home
  2. Mortgage Knowledge Center
  3. Tips on How to Get an FHA Loan

MORTGAGE

Tips on How to Get an FHA Loan

EXPECTED READ TIME: 3 MINUTES

May 21, 2021

Getting an FHA mortgage is just like obtaining any other loan. You apply and turn in your documentation. If everything looks good, you get a prequalification letter. Then you start shopping. Those are the exact steps that you'd take if you were applying for a most loans including FHA, VA, or conventional.

How easy is it to get an FHA loan?

Generally, an FHA loan is easier to get as far as borrower qualifications. But property requirements are stricter. Let's dig into this more.

FHA Borrower Qualifications

Although the FHA loan requirements fill hundreds of pages, there are generally five basic qualifications that borrowers need to be familiar with. 

1. Credit

Here's what the FHA says:

The Borrower is not eligible for FHA-insured financing if the Minimum Decision Credit Score (MDCS) is less than 500.

But that doesn't mean that an approved FHA lender would accept a score of 500. Besides following the FHA guidelines, each lender has its requirements. These additional requirements are called "overlays." For example, most lenders have an overlay that the minimum credit score they'll accept is 620.

2. Qualifying Ratios 

There are two different ratios an FHA underwriter considers:

  • The ratio of the mortgage payment to gross income (before taxes). That ratio cannot exceed 31%. Mortgage payment includes principal and interest, property taxes, homeowner's insurance, mortgage insurance, homeowner association dues, and any special assessments.

Here's an example: Per HUD, the median family income in 2020 was $78,500. That's $6,500 a month. With that income, the total mortgage payment, including the costs mentioned, can't exceed $2,028 a month. If your gross family income is $5,000 per month, your total housing can't exceed $1,550.

  • The other important ratio is the debt-to-income (DTI). Your DTI can't exceed 43% and includes your housing costs and recurring bills like credit cards and car loans. Here are two examples with the same income as above:
Monthly Income Recurring Bills Total Monthly Debts Ratio
$6,500 $400 car payment, $200 credit cards, $2,028 mortgage $2,628 40.4%
Monthly Income Recurring Bills Total Monthly Debts Ratio
$5,000 $400 car payment, $100 credit cards, $1,550 mortgage $2,050 41%

3. Occupancy

FHA funding is only for owner occupied properties. You can't use FHA funding to buy a second home, a vacation home, or investment properties. You can buy a duplex, triplex, or fourplex as long as you live in one of the units as your primary residence.

4. Down payment

The amount of down payment you'll need depends on your credit score. If your score is at least 580 you'll need 3.5%. If your score is 500 to 579, you'll need a 10% down payment based on the sales price of the property.

5. Income

Borrowers need a consistent income that they can document. That can include a job, self-employment income, social security, pensions, and child or spousal support.

How to Get FHA Loan with No Down Payment

The lowest down payment the FHA offers is 3.5% down. There is no zero down like the VA offers. But there are ways the borrower can get help paying for the down payment and even the closing costs.

  • Gift funds are one of the main ways borrowers come up with their down payment money without paying for it themselves. The money has to be a gift and cannot be expected to be repaid. This gift can come from a relative, your parents, an employer, or charity. You'll need to document the contribution with a gift letter. There are also the local city, county, and state grants to help with down payment assistance. But these programs do take longer, and not all lenders work with them.
  • Seller concessions can be up to 6% of the sales price of the home. These can go towards the closing costs but not the down payment.

How long does it take to get an FHA loan?

The answer to this can depend on many things, including the lender, the borrowers, the sellers, and the property.

When rates are extremely low like we see right now, lenders get backed up. The turn-around loan processing and underwriting can take longer. Plus, only FHA appraisers can do the appraisal, and they can get swamped.

And, if something comes up in the appraisal or inspection, the buyers and sellers might have to renegotiate.

Property guidelines are stricter for an FHA loan, so it's not uncommon for the appraiser to call out certain things that need to be fixed before funding. These can include:

  • Dry rot — interior and exterior
  • Broken windows
  • Exposed wiring
  • Exterior doors that don't close right
  • Missing appliances
  • Old roofs that won't last for three more years

Repairs can add weeks — especially in peak season when contractors are busy. The key is to have realistic expectations and do whatever you can to keep the loan moving along. If the underwriter needs information, an explanation, or documentation — get it to them quickly.

For more information about PenFed Mortgages:
 

PenFed Mortgage: 

800-970-7766

Get Started

SIMILAR ARTICLES

What Is an FHA Loan?

FHA loans are great for first time borrowers, have lenient credit qualifications, and only require 3.5% down. Read on to learn about FHA mortgages.
couple moving into home

What Are the Different Types of Mortgages?

There are different types of mortgages for all financial situations. PenFed Credit Union provides details on different mortgages and which might be right for you.
couple researching on laptop together

What Is a Jumbo Loan?

What is a jumbo loan and why would I need one? PenFed Credit Union explains everything you need to know about jumbo loans and how to get one.
single-family houses in a row in a neighborhood

What Is a Conforming Loan?

A conforming loan is based on guidelines set by government sponsored entities. It is important to understand what a conforming loan is and its differences from other mortgage loans.
people discussing over mortgage papers
image

FHA LOANS

Rates starting at % (APR %)¹

 

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

Home Buying Steps

  • Getting Started
  • Finding a Home
  • Getting a Mortgage
  • Home Ownership

Mortgage Topics

  • VA Loans
  • Conventional Loans
  • First Time Homebuyer
  • Home Equity
  • Homebuying 101
  • Checklists
  • Adjustable Rate Mortgages
  • PenFed Top 10
  • Refinance
  • Jumbo Loans
  • FHA
  • Videos

Mortgage Products

  • Mortgage Center
  • Refinancing
  • Home Equity

PenFed HELOC

Rates as Low as % APR* with flexible use of funds

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

Disclosures

1Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on discount point, which equals percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 96.5%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.

*Prime Rate is % as of . The APR for this Home Equity Line of Credit (HELOC) is based on prime plus a margin and can change monthly. Fixed Rate Advances will be amortized over the Fixed Rate Advance Term, with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin, and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than % for primary residences and second homes.

  • Annual Fee: Notwithstanding the foregoing, an annual fee of $99 will be assessed on each account anniversary.
  • Home equity lines of credit (HELOC) are variable rate loans and the interest rate is subject to increase after consummation of the loan on monthly basis. Closing costs range between $500 and $8,500 for credit lines of $500,000. Contact a representative for additional details.

Appraisals: PenFed will attempt to establish value via an independent method. If that method is unsuccessful, or the value is not sufficient for the amount requested, an appraisal will be required regardless of CLTV. An appraisal is always required in the following circumstances:

For all loans with a loan amount greater than $400,000.

If an appraisal is required, it must be ordered by PenFed. You will be contacted for authorization and payment prior to ordering. Appraisal fees average $550 to $850 (some run higher).

  • Closing Cost Credit: PenFed will pay most closing costs associated with a home equity line of credit (HELOC), which includes credit report, flood certification, settlement/closing, property ownership and encumbrances search, recording, property search, and quick close. Member is responsible for any city, county, and/or state taxes if the subject property is located in FL, LA, MD, MN, NY, TN, or VA. If an appraisal is required, the member, who is responsible for the fee whether or not the loan closes, will pay the cost.

Interest may be tax deductible, consult a tax advisor for further information regarding the tax deductibility of interest and charges.

Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Advance Period. During your Advance Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.

Fixed Rate Advances will be amortized over the Fixed Rate Advance Term with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than % for primary residences and second homes and 4.75% for investment properties.

Property Insurance: Property insurance is required.

Multiple PenFed Loans: Multiple PenFed Equity loans and HELOCs are available as long as the member and collateral qualify (except Texas). For Equity loans and HELOCs the total indebtedness cannot exceed $500,000 for all PenFed Equity and HELOCs combined.

PenFed does not lend on:

  • Mobile homes
  • Co-ops or time-shares
  • Properties that are currently listed on the market for sale
  • Commercial property or property used for commercial purposes, even if a residence is part of the property
  • Undeveloped property (land only)
  • Properties with more than 4 units

Properties that are currently under major construction/renovations: Property must be fully livable, with no safety issues. (Examples: no missing rails from stairs/decks, no open walls with wires showing, missing kitchen appliances/counters, missing bath fixtures or unfinished pool).

  • Additional limitations may apply

Home Equity Line of Credit:

  • This Account has a Draw Period of 10 years, followed by a repayment period of 20 years.
  • If only minimum payments are made during the draw period, the loan balance will not decrease.
  • In Texas, the maximum CLTV available is 80% on owner occupied properties. Additional restrictions apply in Texas, so please ask a representative for details.
  • In all other states, the maximum CLTV is 85% on owner occupied properties and second homes. Additional restrictions or requirements may apply based on application characteristics.
  • Property type of Condo has a maximum CLTV of 80%.
  • The maximum CLTV available is dependent on credit qualification.
  • Rates vary depending on owner occupancy and CLTV and other loan criteria.

Minimum Loan Amount Requirements in all States:

  • For an owner occupied property or second home the minimum loan amount is $25,000 and the maximum amount is $500,000 with a CLTV of 85% or less of the fair market value.

Other terms and conditions apply; call 844-918-4307 to speak with a representative for details. All rates and offers are subject to change without notice. To receive advertised product, you must become a member of PenFed.

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This credit union is federally insured by the National Credit Union Administration. Rates are current as of October 2023 unless otherwise noted and are subject to change.

APY = Annual Percentage Yield
APR = Annual Percentage Rate


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IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party Website that is not a part of Pentagon Federal Credit Union.


The content you are about to view is produced by a third party unaffiliated to Pentagon Federal Credit Union. PenFed takes no responsibility for the content of the page.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party site. PenFed Realty, LLC is wholly owned by PenFed and this referral may provide PenFed a financial or other benefit.


For more information about the relationship between PenFed and PenFed Realty, LLC, see the Affiliate Business Arrangement Disclosure.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party Website.


The content you are about to view is produced by a third party website that is unaffiliated to Pentagon Federal Credit Union. PenFed takes no responsibility for the content of the page.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party site. PenFed Title, LLC is wholly owned by PenFed and this referral may provide PenFed a financial or other benefit.


For more information about the relationship between PenFed and PenFed Title, LLC, see the Affiliate Business Arrangement Disclosure.


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