FHA Loans
Minnesota
Minnesota's policies and non-discrimination laws give it an above-average equality rating. Cities like St. Paul, Pine City, Duluth, and Minneapolis celebrate and honor LGBTQ+ rights, making it a great place to call home. Additionally, beautiful Minnesota has long been known for welcoming people from all over the world; over 10% of its workforce is immigrants.
While the state is overwhelmingly White, significant improvements have been made to boost racial equity. The government is even recommending that bills have a racial equity impact score attached to them so that lawmakers can be assured that they are doing right by all Minnesotans.
However, people of all backgrounds may face significant challenges when purchasing property. An FHA loan can solve some of the challenges of buying a home, especially for buyers with less-than-perfect credit scores or minimal savings. If you have always dreamed of owning a home in Minnesota, FHA loans may be your solution.
What Are FHA Loans?
FHA loans are government-backed mortgage loans available to those who may not meet the traditional requirements of a conventional home loan. These loans are offered by private mortgage lenders, such as banks and credit unions, but FHA financing is backed by the federal government. If a borrower defaults, the government will partially reimburse the company. This is different from conventional loans, which are purchased by Fannie Mae and Freddie Mac on the secondary mortgage market and are typically only given to those with good credit.
Since its creation in 1934, the program has funded over 40 million home purchases throughout the United States. It has been a key ally in reducing homeownership disparity for marginalized people; over 30% of loans offered through the program go to borrowers of color, which is far higher than for conventional loan products.
The Department of Housing and Urban Development, the overarching department for the Federal Housing Administration, has also been instrumental in lowering barriers for LGBTQ+ individuals seeking financing for home purchases. Back in 2012, it required lenders to provide equal access to funding regardless of a person’s actual or perceived gender identity or sexual orientation, a landmark victory for the LGBTQ+ community.
In 2021, HUD tightened enforcement of these standards and has released new guidelines to reduce disparities in lending opportunities for LGBTQ+ individuals. Marginalized individuals can be assured that they are being included in funding initiatives when they work with the FHA.
With the backing of the United States Department of Housing and Urban Development, more lenders are willing to offer mortgages with competitive rates and lower down payment requirements.
A Minnesota FHA loan is ideal for first-time home buyers, especially those with a poor borrowing profile. However, it’s important to note that these loans can be used by anyone, no matter their income or previous homebuying experience.
Benefits of Federal Housing Administration Loans
An FHA loan in Minnesota can make homeownership more accessible for a larger population of local buyers. Some of the top benefits of an FHA mortgage include the following.
Small Down Payment Options
Most FHA lenders will require some amount of money down. However, the amount you’re required to put down on the mortgage loan will depend on the lender, loan amount, and program. Many FHA lenders are willing to accept a lower score in return for large down payments, which can be very helpful for those whose financial profile is less than perfect.
Keep in mind the more you put down on the loan, the less you will pay in interest over the life of the loan. Additionally, putting more money down on the loan can earn you a better rate.
If you’re unable to come up with the upfront expenses, consider what assistance programs you may be eligible for. Some programs available in Minnesota include the First-Generation Homebuyer Loan or the Homeownership Assistance Program through the Minnesota Housing Department. Pride Lending also has access to national programs that can assist you.
Many assistance programs have their own eligibility requirements, such as being a first-time homebuyer. We’ll walk you through the different programs and what you need to apply so that you’re sure you have the maximum assistance amount available.
Competitive Interest Rates
If you are interested in an FHA loan in Texas, then you should understand the benefits of this option. Here are a few advantages Texas homebuyers will experience with FHA loans.
Flexible Underwriting Guidelines
Underwriting is the process of evaluating a borrower’s risk. Since these borrowers are in more precarious financial situations, most applications are underwritten manually. What loan officers look for during the underwriting process is usually more flexible with FHA loans, whereas a conventional product would have more strict requirements.
Assumable Mortgages (Buyer Can Take over Existing FHA Loan)
An FHA mortgage on a house in Texas may be eligible as an assumable mortgage for a new buyer. Essentially, instead of taking out a new loan to buy a house, you take over the debt and payments for an existing FHA mortgage and become the new owner of the house. This is an excellent option for people with spotty credit reports.
FHA Loan Requirements
Every lender will have their own requirements for the FHA program. However, the typical Texas FHA loan requirements are as follows.
Minimum Credit Score
To qualify for an FHA home loan, you should aim for a credit score of 580 or better, as they will allow you to access the best rates and lowest upfront expenses. Lenders approving FHA mortgages may allow for scores as low as 500 if they offer at least 10% upfront.
Down Payment Amount
As mentioned previously, the minimum down payment for an FHA mortgage is 3.5% for those with a score of 580 or greater; those with scores between 500 and 579 must make a minimum payment of 10%. Although this is a low down payment and makes homes more affordable, it also means you would pay a private mortgage insurance premium (MIP).
We understand that even 3.5% can feel like a challenge depending on your personal finances, but Pride Lending is here to assist. We’ll connect you with local, state, and nationwide down payment assistance programs that can provide you with grants or second liens.
Numerous organizations in Texas offer assistance for those who can’t afford their upfront costs. For example, you may choose DPA programs from the Texas State Affordable Housing Corporation (TSAHC) or the Texas Homebuyer Program from the Texas Department of Housing and Community Affairs.
Debt-To-Income Ratio (DTI)
DTI compares your monthly debt payments to your gross monthly income. You divide your debt total by the gross income each month and then multiply by 100 to get a percentage. The typical lender will require a maximum DTI of 43%. Lenders can make an exception to a maximum DTI of 57% if the borrower has a good credit profile and provides a larger down payment.
Property Standards
Since the government is backing this mortgage, approval for the property type is needed before the loan is given. An appraisal will ensure the property is safe to occupy and up to standards for liveable conditions.
Additionally, this home must become your primary residence to qualify. However, it is possible to purchase a property with up to 4 units and rent up to 3 units, as long as one is used as your permanent residence.
Mortgage Insurance Premiums (MIP)
Everyone, no matter how much they put down, needs to pay the upfront mortgage insurance premium, which is 1.75% of the loan amount. You’ll also have to pay ongoing annual mortgage insurance premiums, though this may not be for the entire length of the loan.
If you make a 10% down payment or more, the MIP will be removed after 11 years, but if you make less than this, you’ll have MIP for the entirety of the loan. It’s also possible to refinance into a conventional loan once you have 20% equity, which would remove mortgage insurance.
Minnesota FHA Loan Limits
Minnesota FHA loan limits refer to the maximum loan amount that the program will finance. Loan limits vary based on current federal loan limits and the county in Minnesota in which you plan to buy. FHA loan limits also depend on the property type, including a single-family home, two-unit, three-unit, or four-unit property.
Most counties in Minnesota are near the bottom end of the loan limits each year as this is a very affordable state. Minnesota's highest home loan limits are in the hottest markets, including Anoka and Carver. You can learn more about the loan limit requirements in Minnesota using the interactive online tool.
The FHA Loan Process
Ready to get started on purchasing your dream home in Minnesota? Get started with the following steps:
See if you meet the requirements
Evaluate if you have a credit score of 580 or greater, a DTI of 43% or lower, and that you meet the down payment requirement of 3.5%. You may still qualify if you have a score as low as 500 or a DTI of 57%, but this may limit your choices.
Contact Pride Lending
When you reach out to us, we’ll begin your loan consultation by reviewing your options with you. FHA-approved lenders are qualified to give out these mortgages, and finding the right loan partner is the key to a positive homebuying experience.
Apply and get pre-approved
Pre-approval will prepare you for a smoother buying experience and help you understand what you can afford. You will need many documents for your application, including tax returns, paychecks, and bank statements.
Shop for the perfect home
Once you’ve been preapproved, we’ll discuss your budget with you and send your preapproval letter to your realtor. You can then begin shopping for the right property in your area.
Submit an offer
You and your realtor will decide on a competitive bid and submit the letter to the seller.
Complete the application
The application is called the Uniform Residential Loan Application and will include many of the same details you needed for preapproval; however, it will also include property details, which the lender will use to determine whether the property meets their standards.
Offer acceptance
The seller will decide if they find your offer acceptable. If they do, then you’ll sign a purchase contract that tentatively agrees to buying the home.
Inspection
While not strictly necessary for the program, the lender will likely require you to have the property inspected, ensuring that there are no significant issues.
Conditions
If you’re happy with the inspection results, then our team at Pride Lending will walk you through the sales contract and make sure everything is correct.
Underwriting
We will submit all the details that you have provided to the lender, whose underwriting team will now take over. They will carefully investigate each facet of the loan and ensure that there are no issues with you or the home.
Appraisal
An approved appraiser will evaluate the property to determine if it is a fair value, is safe to live in, and meets the property requirements for FHA home loans.
Loan approval
Once the appraisal is complete and the details of the loan have been reviewed, the lender will proceed with the final approval of your loan so that you can close on the transaction. We will schedule the closing date with you and the title company will send the information regarding how to pay the upfront expenses.
Close on the home
All the documents will be signed, the title will be transferred to you, the closing costs will be paid, and you will become the new owner of that house with the help of an FHA home loan.
Why Choose Pride Lending for Your Texas FHA Loan?
When you need the right team on your side to navigate the Texas FHA program, a loan officer from Pride Lending is ready to help. We serve all our clients with the same care, offering excellent customer service and a streamlined application process to make homeownership affordable and accessible.
Our team is composed of allies and members of minority communities, including LGBTQ+ and BIPOC individuals. We’re here to help everyone, no matter their identity, and serve as an advocate for those who may feel underserved by the mortgage industry.
First-time homebuyers and repeat buyers alike can work with Pride Lending whether they want to buy a single-family home or learn about an FHA reverse mortgage. Call us today at 725-231-0192 to learn more about Texas FHA loans.