Get Approved for an FHA Mortgage with 3.5% Down

  • July 27, 2022
  •   •  
  • 4 min. read time
mortgage blog, fha mortgage, home loans, preferred rate

An FHA mortgage is one of the best options for new homeowners and first-time homebuyers. FHA home loans have more flexible requirements for approval and offer some of the lowest mortgage rates available. What’s more, with an FHA loan, you can get approved with a lower down payment and an imperfect credit history.

FHA loans are government-backed mortgages which means they are widely available. Still, be sure to partner with a mortgage lender who underwrites FHA mortgages and has experience in your local housing market. An experienced local mortgage advisor will talk through your big picture goals and make sure your mortgage helps you build financial security. After all, a new mortgage in 2022 is one of the biggest financial commitments many people will make this year.

One of the best early moves you can make is to get pre-approved and lock in your mortgage rate.

Finding The Right Mortgage Advisor for an FHA Mortgage

For the best FHA mortgage, partner with a mortgage advisor who does custom mortgages. FHA loans are fairly straightforward, but every mortgage has subtle differences that can end up costing you thousands of dollars over the life of your home loan. Even when a lender promises a low introductory interest rate, it can cost you more through one-time fees at closing.

Partnering with a local mortgage advisor who writes custom mortgages and FHA loans on a regular basis can get you a better home loan every time. They’ll look at your whole profile — the purchase price and appraisal, along with your credit score, income, debt-to-income ratio, assets, employment history, and your down payment.

Quick tip—not all mortgage lenders are licensed to write FHA loans. So it’s best to make sure your lender writes FHA mortgages before you start working together. Make sure to check client reviews, too. Your mortgage is one of the biggest financial commitments you’ll make.

How to Get Approved for an FHA Home Loan

FHA loans are easier to qualify for compared to most other home loans.

There are three main financial buckets that lenders evaluate for your mortgage: your income, credit score, and total assets. Combined, this provides your lender with your DTI ratio (debt-to-income ratio). Your DTI is one of the most influential factors mortgage lenders use to determine risk.

Here’s a snapshot to get approved at a preferred rate:

  • 3.5% Down Payment: The minimum down payment required for an FHA loan is 3.5% of the amount you want to borrow. If your credit score is 500-579, a minimum down payment of 10% is required.
  • Minimum Credit Score: The minimum credit score to qualify for an FHA loan is typically 580, though some lenders will approve a borrower who has a credit score between 500-579. Note that you must be free of 30-day late payments within the past year and no foreclosures within the past three years.
  • Debt-to-Income (DTI) Ratio up to 45%: Your debt-to-income ratio (DTI) measures your monthly income against any recurring debt obligations and is one of the biggest factors that affects your mortgage offer. Most mortgage lenders require a DTI of less than 45% to qualify for an FHA. In addition, your mortgage payment should be below 32% of your gross monthly income.
  • Low Closing Costs: Closing costs for an FHA mortgage are the one-time fees associated with writing the loan. Prepare to pay 2%-5% of the total loan amount at closing. This is in addition to your down payment.

Related: How to FAST TRACK your mortgage pre-approval

A Few Restrictions With FHA Loans

First, the property must be your primary residence when you decide to apply for an FHA loan. It can be a single-family home or a multi-unit property (up to four units), as long as you live in one of the units full-time.

Second, FHA loans include an additional fee referred to as a mortgage insurance premium (MIP). This is similar to PMI (private mortgage insurance) that is typically added to a conventional mortgage for homebuyers who put less than 20% down.

For the mortgage insurance premium required with FHA loans, there are two fees: a 1.75% fee due at closing and an annual installment that is typically added to your mortgage payment each month. Many homebuyers roll the up-front fee into their mortgage. Also, the MIP payment is typically added directly to your mortgage payment each month for convenience.

Quick tip: many homeowners refinance their mortgage once they’ve built some home equity. Once you own at least 80% of your home, you can qualify for a number of custom loan programs that may reduce your mortgage payment. Also, you’ll be able to get rid of your mortgage insurance premium.

Connect with your local mortgage advisor and start your application and get pre-approved for your best home loan.

Summary

FHA loans offer homebuyers an opportunity to make homeownership a reality in 2022 with a down payment of 3.5% and less than perfect credit history. Be prepared for closing costs and a mortgage insurance premium that will be added to your mortgage payment. 

Finally, partner with a local mortgage advisor who is licensed to write FHA loans and specializes in custom home loans. This will give you the best of both worlds and a mortgage that will save you money.

Taking Action

Applying for an FHA loan in 2022 is a smart move for homebuyers looking for a low mortgage rate and a low down payment. From buying and selling property, investing in real estate, wealth-generation strategies, and providing opportunities to improve your financial situation, our trusted mortgage advisors are here to help guide you along your homeownership journey. Connect with a local mortgage advisor today to get started. We’d love to help.

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THE DEPARTMENT MAINTAINS A RECOVERY FUND TO MAKE PAYMENTS OF CERTAIN ACTUAL OUT OF POCKET DAMAGES SUSTAINED BY BORROWERS CAUSED BY ACTS OF LICENSED RESIDENTIALMORTGAGE LOAN ORIGINATORS. A WRITTEN APPLICATION FOR REIMBURSEMENT FROM THE RECOVERY FUND MUST BE FILED WITH AND INVESTIGATED BY THE DEPARTMENT PRIOR TO THE PAYMENT OF A CLAIM. FOR MORE INFORMATION ABOUT THE RECOVERY FUND, PLEASE CONSULT THE DEPARTMENT'S WEBSITE AT WWW.SML.TEXAS.GOV