One of the biggest challenges for those buying their first home is coming up with the necessary funds needed to purchase a home. There is a down payment involved and there are closing costs associated with a new mortgage. For many, it’s not their credit that is an issue nor is having sufficient income to qualify and a two year employment history. Instead, it’s saving up the necessary cash to close. But there are programs in Florida that can address some of these concerns regarding down payment and closing costs that may not be all that well known. There is a program that combines an FHA mortgage with Florida’s “Florida Assist” program. Let’s look at how these two programs work together to provide solutions for first time home buyers.
The FHA Program
The FHA loan program was first introduced back in 1934. The country was still recovering from the effects of the Great Depression and the FHA loan was designed to help jump start the economy by providing an easier path to home ownership. Prior to the introduction of the FHA program, qualification guidelines varied widely from bank to bank. Down payment requirements could be as high as 30-40% or more, even higher. This kept many out of home ownership and stuck being renters.
Today, the FHA loan asks for a down payment of just 3.5% of the sales price of the property and one of the many reasons why first time buyers choose the FHA program. Standard FHA loan requirements ask there be at least a two year employment history. Lenders will compare the borrowers’ total monthly housing payment which includes principal and interest, property taxes, insurance and mortgage insurance with gross monthly income listed on the application. In addition to the housing costs, lenders also add in other monthly credit obligations such as a credit card or auto loan payment. These totals are also compared to gross monthly income. FHA lenders like to see this total amount be somewhere around 43% of income.
To verify this income, you’ll need to provide your most recent pay check stubs covering a 30 day period as well as your last two years of W2 forms. If you’re self-employed or receive other income greater than 25% of total income, you’ll need to provide your last two years of federal income tax returns, both personal and business. A year-to-date profit and loss statement will also be asked for.
To make sure there are enough funds available for the 3.5% down payment and associated closing costs, copies of recent bank statements are needed. With a phone call or email, we can provide an estimate list of costs you can expect at your settlement. Most lenders ask for a minimum credit score of 580, with some exceptions for buyers with greater down payment.
The FHA program also limits the maximum loan amount on a county by county basis. In most parts of Florida, the loan limit is $294,515 and in areas considered “high cost” the maximum FHA loan amount can be $679,650. Both limits can be higher for owner-occupied two-to-four unit properties. For example, the loan limit in Jacksonville, Florida, Baker County is $343,850 for a single family home while a home in Key West, Monroe County the maximum FHA loan limit is $529,000 for 2018. The standard loan limit is 65% of the current conforming limit of $453,100.
Update 2019 – please see new conforming loan limits.
Down Payment Assistance and Florida FHA Loans
In Florida, there is a program that provides up to $7,500 that can be applied toward a down payment as well as closing costs. This program is referred to as the FHA with Florida Assist mortgage. The program is used in conjunction with an FHA loan and available as a 30 year fixed rate mortgage. And while the minimum credit score requirement set by the FHA is as low as 500, the minimum required score for this program is 640. When applying for the mortgage and a credit report is pulled, there will be a report requested from the three main credit repositories of Equifax, Experian and TransUnion. Of the three scores reported by each bureau, the middle score will be used as the qualifying score.
This program is available only to first time home buyers but it can be used by those who may have previously owned a home as long as they haven’t had any homeownership within the past three years. There is also a homebuyer education class required and we can provide you with convenient locations to take the course as well as an online resource.
The Florida Assist program is in the form of a zero percent second mortgage and does not need to be paid while living in the property. However, once the borrowers sell or refinance the existing mortgage used to purchase the home, the down payment assistance must be repaid in full. There can be no cash back at the closing table and co-signers are not allowed. It can be used to finance a single family residence, town home or condo as long as the condominium project has previously been approved.
Let’s take a look at a common scenario. The purchase price for a single family home is $250,000 and the buyers are using the FHA program and Florida Assist. The minimum down payment is 3.5% of $250,000 or $8,750. Associated closing costs also add up to $3,000 for a total cash to close needed of $11,750. The buyers apply for the FHA Florida Assist program and receive $7,500 at the closing table leaving a balance needed of $4,000. They provide bank statements that show there are sufficient funds to close and the loan package makes its way through a loan approval. There is a second lien recorded in the amount of $7,500 for the down payment assistance funds. A few years later, the buyers decide to sell and move to another home. Upon sale, both the existing first mortgage and second are paid off at closing.
We encourage buyers that have questions to contact us at the number above, or by submitting the Quick Request Form.