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FHA Loan Maryland: Homebuyers Handbook

FHA Loan Maryland Homebuyers Handbook

Purchasing a home is a significant financial decision, and finding the right mortgage option can often feel overwhelming. 

However, for residents of Maryland, an FHA loan can be an appealing choice for various reasons. 

In this comprehensive guide,(FHA Loan Maryland Homebuyers Guie) we will explore the ins and outs of FHA loans in Maryland, providing you with all the information you need to make an informed decision.

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Why Consider an FHA Loan in Maryland?

FHA loans are particularly advantageous in Maryland, where the median home cost is above the national average. With homes in Maryland averaging $67,800 more, down payments can be hefty. Fortunately, FHA loans can help alleviate this burden as they do not require a large down payment. It is no wonder that FHA loans have gained popularity among Maryland residents, with a total value of $387 million in FHA loans in the state as of April 2019[^1].

The benefits of FHA loans Maryland include:

1.       Great for first-time homebuyers: FHA loans are especially beneficial for first-time homebuyers who may not have the means or desire to put down a large down payment.

2.       Lower mortgage rates: FHA mortgage rates are typically lower than conventional mortgage rates, offering potential savings over the life of the loan.

3.       Lower down payment and credit score requirements: FHA loans have lower down payment and credit score requirements compared to conventional loans, making homeownership more accessible. As low as a FICO of 550.

4.       Seller contributions towards closing costs: Sellers can contribute up to 6% of the purchase price or appraised value (whichever is less) towards the buyer’s closing costs. FYI. VA Loans with zero down payment allow for 4% seller contribution.

5.       Assumable loans: FHA loans are assumable, allowing future buyers to take over the loan under certain conditions.

FHA Loan Limits in Maryland

Understanding the maximum loan limit is crucial before starting your house hunting process. FHA loan limits in Maryland are adjusted annually and vary depending on the location. For example, the baseline limit is $472,030, but in Baltimore, the limit is $632,500 due to the higher cost of real estate. To see a full list of Maryland FHA loan limits for 2023, refer to the link below.

Click here for a full list of Maryland FHA loan limits for 2023 Click Here! https://www.cambridgehomeloan.com/fha-loan-limits-maryland-2023/

Eligibility for an FHA Loan in Maryland

To determine if you are eligible for an FHA loan in Maryland, you must meet certain criteria. These criteria include:

6.       Two years of steady employment, preferably with the same employer.

7.       Steady income or increasing income over the past two years.

8.       Less than two 30-day periods of late payments on your credit report.

9.       Bankruptcy declared at least two years ago, with good credit maintained since.

10.   No involvement in a foreclosure for at least three years, with good credit maintained since.

11.   Anticipated mortgage payment equal to or less than 30% of your gross income.

Required Documents for Applying for an FHA Loan in Maryland

When applying for an FHA loan in Maryland, you will need to provide various information and documents requested by lenders. These documents include:

12.   Addresses of all your residences over the past two years.

13.   Names of your employers over the past two years.

14.   W-2 forms for the past two years and current paycheck stubs.

15.   Current gross monthly salary.

16.   Social Security Number.

17.   Names, addresses, and account numbers with balances for all checking and savings accounts.

18.   Addresses and loan information for any other real estate you own.

19.   Personal tax returns for the past two years and a current income statement and balance sheet for self-employed individuals.

20.   Evidence of enrollment for students, along with verification information for student loans.

FHA Loan Benefits and Disadvantages

FHA loans come with several benefits and disadvantages compared to conventional loans. Understanding these can help you decide if an FHA loan is right for you.

Benefits of FHA loans include:

21.   Lower credit score requirements: FHA loans accept lower credit scores compared to conventional loans, allowing individuals with less-than-perfect credit to qualify.

22.   Lower down payment requirement: FHA loans require a lower down payment, making homeownership more accessible for those with limited funds.

23.   Lower interest rates: FHA mortgage rates are typically lower than conventional rates, potentially saving you money over the life of the loan.

24.   Seller contributions: Sellers can contribute towards the buyer’s closing costs, making the transaction more affordable.

25.   Assumable loans: FHA loans are assumable, allowing potential buyers to take over the loan under specific conditions.

Disadvantages of FHA loans include:

26.   Upfront mortgage insurance premium: FHA loans require an upfront mortgage insurance premium of 1.75% of the loan amount, which is added to the loan balance.

27.   Monthly mortgage insurance premium: FHA loans also require a monthly mortgage insurance premium, which can be higher than private mortgage insurance (PMI) on conventional loans.

28.   Mortgage insurance for the life of the loan: Unlike conventional loans, FHA loans require mortgage insurance for the entire duration of the loan.

29.   Additional documentation: FHA loans may require more paperwork compared to conventional loans.

30.   Purchase price limitations: FHA loans have limits on the purchase price of homes, making them unsuitable for purchasing expensive properties.

FHA Credit Requirements

FHA loans have flexible credit requirements, making them accessible to individuals with lower credit scores. While the minimum FICO score required for an FHA loan is 500, lenders may impose stricter requirements. It’s important to note that not all FHA lenders accept credit scores below 580. However, FHA Lenders can help you find lenders who do accept lower credit scores.

Additionally, there are FHA loan requirements related to collections and other items on your credit report. Certain disputes, such as medical disputes, can be excluded from the credit analysis during the underwriting process of your FHA mortgage application.

FHA Down Payment Requirements

The down payment requirements for FHA loans are dependent on your credit score. If your credit score is 580 or higher, the down payment requirement is 3.5% of the purchase price. If your credit score is below 580, the down payment requirement increases to 10%.

If you currently don’t have the down payment but expect to have it in the near future, you can connect with FHA lenders who can guide you through the process and prepare you for a successful real estate transaction.

FHA Debt to Income Ratio Requirements

The FHA debt to income (DTI) requirements determine how much of your income can be allocated towards housing expenses and total debt. The general guidelines for FHA DTI requirements are a maximum of 31% for housing-related expenses and 43% for the total debt, including proposed housing expenses and other monthly debt.

Lenders have some flexibility to allow a total DTI of up to 50% if there are additional compensating factors, such as no payment shock, high cash reserves, or additional income not documented on the loan application.

FHA Closing Cost Requirements

FHA loans have closing costs that typically range from 2.5% to 5% of the total loan amount. These costs can be covered by the seller or financed as part of the loan. Some common FHA closing costs include credit reports, loan origination fees, discount points, underwriting fees, appraisal fees, survey fees, attorney fees, title-related fees, and homeowner’s insurance.

Mortgage Insurance Premium (MIP)

FHA loans require mortgage insurance to protect the lender in case of default. There is an upfront mortgage insurance premium of 1.75% of the loan amount, paid at closing. Additionally, there is an annual mortgage insurance premium that is divided equally across monthly mortgage payments.

It’s important to consider the mortgage insurance premium when applying for an FHA loan. However, there are circumstances in which the mortgage insurance premium can be removed from your mortgage.

FHA Documentation Requirements

When applying for an FHA loan, you will need to provide various documents to support your application. These documents include your Social Security number, identification, pay stubs, tax returns, bank statements, loan application forms, verification of employment, credit report, appraisal report, sales contract, and other relevant documentation. Be prepared to submit additional documents as required during the application process.

FHA Property Requirements

FHA loans can only be used to purchase primary residences, including single-family homes and FHA-approved condos. The property must be deemed safe, sound, and secure by meeting minimum property living standards. The property cannot be a fix and flip, an investment property, or have any encroachments onto neighboring properties. It must also be free from hazards or toxins.

FHA Loan Limits

To determine the loan limits in your county, refer to the FHA Loan Limits lookup page HERE.

FHA Appraisal Requirements

Every home purchased with an FHA-insured loan must undergo an appraisal performed by an approved appraiser. The appraisal ensures that the home’s value matches the purchase price and assesses the property’s condition. The appraiser checks for lead paint, operational fixtures and appliances, plumbing and electrical problems, foundation issues, hazards, roof condition, and overall property condition. 

Conclusion:

Understanding the ins and outs of FHA loans in Maryland is vital for any homebuyer. 

From the benefits and disadvantages to the eligibility criteria and required documentation, this handbook provides a comprehensive overview of what to expect when considering an FHA loan in Maryland. 

FHA LOAN MARYLAND BENEFITS:

*Down Payment 3.5% Down
* Min FICO for 10% Down FICO 550
* Min FICO 580+ for 3.5% Down
* Fast Closing! As Fast As 17 Days!
* Closing Costs can be contributed by Seller
* Down Payment can be gifted by a relative
* First time home buyer maryland

 

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By arming yourself with this knowledge, you can make an informed decision and navigate the home buying process with confidence.

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Fha loan Maryland Homebuyers Handbook

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