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For the most part, buying a home in Atlanta, GA is just like buying a house in any part of the country. Most Atlanta home buyers will be applying for a mortgage loan to finance the purchase of their property. A good number of those mortgage borrowers will be looking into FHA loans as the best way to qualify for a home loan.
What is an FHA Loan?
An FHA loan is a special type of mortgage loan that is insured by the Federal Housing Administration. This is a government-backed program aimed at helping more home buyers achieve the American Dream of homeownership. Many FHA borrowers are first-time home buyers, but FHA loans can be used for other home purchases. For example, a move-up buyer or someone downsizing into a smaller home may qualify for an FHA loan.
FHA Mortgage Rates & Down Payment
FHA loans offer excellent benefits to those who qualify. You can get competitive mortgage rates, and you can secure your loan with a lower down payment and weaker credit score. The minimum down payment required for an FHA home loan is 3.5%. Let’s say you are looking to buy a starter home or condo in Atlanta for $300,000. A 3.5% down payment would equate to $10,500, in addition to any other closing costs associated with the real estate transaction.
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That is still a lot of money, but more attainable for some home buyers compared with certain conventional loans that may require down payments as high as 10-20%. Another advantage is that you can qualify for an FHA loan with a lower credit rating. You will need a FICO score of at least 580 to have a 3.5% minimum down payment.
Other zero/low-down payment home loan programs (like USDA or VA loans) may require credit scores of at least 640. Borrowers with really weak credit scores may still be able to get an FHA loan. For example, a home buyer with a 500 credit score can still qualify as long as they are able to pay at least 10% down.
Primary Residential Use
One very important factor to remember when it comes to FHA loans is that the property being purchased must be used as your primary residence. FHA loans cannot be used for second homes, vacation properties or commercial spaces. They can be used for multi-family investment properties, provided you are living in one of the units as your primary residence.
FHA Loan Limits
FHA loans are also subject to loan limits. This means you can only borrow so much with this type of mortgage loan. In Georgia’s highest-income counties in and around the Atlanta metro area, you will have a conforming loan limit of $471,500 in 2022 for any single-family properties. Multi-family properties will have higher limits depending on the amount of units. This amount is adjusted each year by the FHA based on prevailing home values. It will likely go up again in 2023 with property values being very strong this year. If you are looking to buy something more expensive, then you will want to look into other mortgage loan programs to fund your purchase.
FHA Mortgage Insurance
With any mortgage loan where you pay less than 20% down, you will be subject to mortgage insurance (PMI or MIP). These premiums will be tacked onto your monthly mortgage payments until you have paid off a predetermined amount of your loan (usually around that 20% threshold with most lenders). You will want to factor this into your overall homeownership expenses, but it’s a fair trade-off. Mortgage lenders are taking more risks when buyers apply lower down payments. Mortgage insurance is there to protect both them and you.
FHA Mortgage Rates
There are several financial factors that go into determining your mortgage rate. The amount of your down payment will be important. If you apply the minimum FHA down payment of 3.5%, you will likely be paying a higher interest rate compared to someone who is putting down 10 or 20%. This is pretty much true with all mortgage loan programs. Your credit score, employment/income history and debt-to-income (DTI) ratio will also factor into how your mortgage rate is calculated.
Borrowers with higher existing debts, lower FICO scores, weaker employment situations and/or lower down payments will be expected to pay higher mortgage rates. It’s a good idea to get your finances in order and improve your financial standing before applying for a home loan. An FHA loan will enable you to qualify for funding with lower standards, though. You should still work to make sure you are truly ready to buy, while aiming to get your mortgage rate as low as possible.
To learn more about FHA mortgage loans and to apply for your home loan in Atlanta, contact Moreira Team | MortgageRight today to get started. Let our team help you find the loan program that’s right for you.