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For many first-time homebuyers, saving enough money to make a down payment presents a daunting challenge. If you're considering a conventional mortgage product, you'll likely need to pay at least 20% upfront to qualify for the loan. Using a purchase price of $200,000 as an example, you'd have to come up with $40,000.
If you're dreaming of purchasing your first house and don't have tens of thousands of dollars to spare, FHA loans can provide a more affordable solution. You can purchase the home with a much smaller down payment than a traditional loan product, even if you don't have outstanding credit.
What Are FHA Loans?
FHA loans have been helping people become homeowners since 1934. The Federal Housing Administration (FHA), which is part of HUD (Housing and Urban Development), insures the loan. Approved FHA mortgage lenders, including banks, credit unions and various nonbanking institutions, issue these loans to qualified buyers.
The Benefits of FHA Loans for First-Time Homebuyers
FHA loans are popular options for first-time homebuyers. The FHA loan requirements are much less stringent than those for most conventional mortgage products, making it easier for low-income individuals and families, as well as people with credit challenges, to turn the dream of homeownership into a reality.
The FHA mortgage offers the following:
- Low 3.5% down payment program: When purchasing a $200,000 home, qualified borrowers would only need to make a down payment of $7,000 instead of $40,000.
- All funds may come from an acceptable gift: FHA regulations regarding the acceptance of financial gifts for down payments from family members, employers and charitable organizations are more liberal than with conventional loans.
- Easier qualifying: Borrowers are only required to have a minimum FICO score of 580. Those with a FICO score from 500-579 may also qualify with a down payment of 10%
- Help with closing costs: Sellers can pay up to 6% of the buyer's closing costs, although some FHA loan lenders cap the seller's contribution at 3%.
- Higher debt-to-income ratio: This debt-to-income ratio (DTI) compares the total of prospective borrowers' monthly debt payments to their monthly gross income. When evaluating applicants for a traditional mortgage, a desirable DTI is 36%. With FHA loans, the acceptable figure is 43%.
- Owner-occupied properties only: FHA loans are not available to buyers who intend to use the property for investment purposes.
Because lenders must assume a higher risk when issuing FHA loans, they will require you to carry mortgage insurance premium (MIP) to protect their interests. MIP covers the lender's losses if you default on your mortgage.
Why Choose Orrstown Bank as Your Mortgage Lender in PA & MD?
Shippensburg, PA-based Orrstown Bank is a trusted source for FHA loans and other mortgage products in Central PA and Maryland. We're a community-oriented bank that has been helping people meet their financial needs for more than 100 years.
When you select us as your FHA loan lender in PA or MD, you'll work with a friendly, knowledgeable mortgage professional who has your best interests in mind. Our high-touch lending process is totally transparent and includes no hidden fees or structure issues. You'll also benefit from our localized decision-making process that helps to prevent closing delays. Although we're a smaller financial institution, we have all the capabilities of a larger bank — along with more attentive service.
Learn More About Our FHA Loan Requirements in PA and MD
Contact an Orrstown Bank loan officer today for more information and to find out about our current FHA loan rates. You can also fill out and submit the form on this page.
Important Notice: Interest Rates and Maximum Loan-to-Value may be based on Credit Score, Property Type, Occupancy, Purpose, Investor, Insurer, Loan to Value and other factors. Additional investor, insurer and Orrstown Bank criteria/conditions apply to all products. Information provided is for illustrative general use only and does not contain all qualification and automated underwriting approval requirements. Orrstown Bank reserves the right to change this information at any time. Meeting any of the criteria does not constitute a commitment to lend.