2024 FHA Loan Requirements
for New Construction Homes
Are you looking to buy a new construction home in 2024? If so, you'll likely want to know about FHA loans; they could be perfect for you. While they're popular with all kinds of prospective home buyers, these loans and their benefits align nicely with the needs of first-time home buyers, those with less-than-perfect credit and homebuyers who need more time to save for a sizeable down payment.
Reasons to Buy a New Construction Home with an FHA Home Loan
- Buyers can qualify with higher debt-to-income ratios
- FHA Loans offer down payments as low as 3.5% of the home's purchase price
- Buyers with lower credit scores can qualify
- New construction homes will easily pass the FHA-approved appraisal
- Sellers can pay up to 6% of the borrower's closing costs
- In most communities, LGI Homes offers builder-paid closing costs
Established by the Federal Housing Administration (FHA) in 1934, these government-backed loans make homeownership more accessible annually for hundreds of thousands of homebuyers. Most lenders are approved for FHA loans, making it easy for home buyers to take advantage of the loan program's lenient qualification criteria and down payment options.
While FHA loan eligibility and qualification criteria stay the same yearly, the Federal Housing Administration must update new loan limits to reflect pricing changes. Before you search for a new home or apply for a loan, it's crucial to understand the loan requirements and FHA loan limits for 2024.
What Are FHA Home Loans?
FHA home loans are mortgages insured by the Federal Housing Administration (FHA) and underwritten by third-party FHA-approved lending institutions such as banks and mortgage providers.
FHA loans make it easier for borrowers with less-than-perfect credit and higher debt-to-income ratios to get approved for a mortgage; FHA loans offer down payments as low as 3.5%.
Why Choose an FHA Loan to Purchase a New Home?
FHA loans are insured by the U.S. government's FHA and overseen by the Department of Housing and Urban Development (HUD). The government guarantee or 'insurance' reduces a lending institution's risk, making it possible for them to offer qualifying terms that are more relaxed than those for mortgages not backed by the U.S. government. The relaxed qualifying terms make it easier for first-time homebuyers and buyers who have not purchased a home in several years to qualify for a mortgage.
Lower Down Payments
One of the most appealing advantages of FHA loans is their lower down payment requirements. Unlike conventional loans, which typically require a 10 or 20% down payment, FHA loans allow for a significantly smaller upfront investment. With an FHA loan, you could secure your dream home with a down payment as low as 3.5% of the home's purchase price.
Homebuyers can combine FHA loans with federal and state-level down payment assistance programs and grants to further reduce the down payment amount. You can visit HUD's grant resources page to learn more about these financial assistance programs.
Ability to Reduce Closing Costs
Another benefit of FHA home loans is that they allow homebuyers to roll some closing costs into their mortgage. However, bear these things in mind regarding closing costs:
- FHA closing costs generally range from two to six percent of the transaction price.
- Sellers may pay up to 6% of a buyer's closing fees.
- States with higher tax rates have higher closing costs.
- Closing costs may be higher with an FHA loan because the mortgage insurance premium (MIP), 1.75% of the purchase price, is due at closing. Your annual MIP costs are divided and added to your monthly mortgage payment.
- Adding closing costs to your mortgage will increase your monthly payment, and you'll be paying interest on the closing costs throughout the life of your loan.
When buying a new home, your builder can help reduce or pay for some or all of your closing costs. Ask LGI Homes how we can help with your closing costs when buying a new LGI home.
Low Credit Score Qualification
A key advantage of FHA loans is their more lenient credit requirements. While conventional loans often require borrowers to have excellent credit scores, FHA loans are accessible to those with less-than-stellar credit.
Lower Interest Rates
FHA loans offer lenient lending rules to assist borrowers who may not qualify for a conventional loan or are eligible for a traditional loan with a high interest rate. FHA interest rates are among the most affordable for borrowers with lower credit scores and higher debt-to-income ratios. However, an FHA loan doesn't inherently mean you get reduced interest rates.
FHA rates are usually lower than conventional rates for customers with a credit score of less than 680. At this level of creditworthiness, the influence of credit score on mortgage rates is greater than the impact of loan type. Mortgages with lower interest rates can mean substantial savings over the life of your loan.
2024 FHA Loan Requirements
In addition to personal eligibility requirements, the United States Department of Housing and Urban Development (HUD) has several FHA loan requirements. Here's what you need to know regarding 2024's requirements.
Property Requirements for FHA Loans
There are a few property requirements related to securing an FHA loan.
First, the property you buy must meet the FHA's minimum property requirements. These are a set of standards that ensure your property meets their criteria concerning safety, security, and structural soundness. An FHA-approved inspector will perform an appraisal; the lender usually orders it after you sign the sale and purchase agreement. FHA-approved inspectors will
Second, the FHA will only grant a loan if it's your primary residence. You cannot use an FHA loan to buy a second home or investment property. The building must also only contain 1-4 units. You cannot use an FHA loan to finance purchases of large multi-family complexes.
The third requirement relates to timing. You must move into the property within 60 days of closing and live there for at least one year. Any construction delays could forfeit the loan, and you can rent out the home before a year if exceptional circumstances require you to move or you have a new family member.
FHA Insurance Requirements
When taking out an FHA loan, you must pay FHA mortgage insurance premiums (MIPs). This requirement protects the lender against a default. A mortgage insurance premium policy has two payment requirements. The first is an upfront payment (UFMIP) due when you get the loan; then, you make monthly payments on the policy along with your mortgage payment.
Upfront Premium (UFMIP)
Your FHA loan mandates an upfront mortgage insurance premium of 1.75% of your loan amount. Don't worry – you won't need to bring this cash to closing. The loan allows you to roll this cost into your total mortgage amount.
Annual FHA Mortgage Insurance
In addition to the upfront insurance payment, your FHA loan requires ongoing annual premiums, paid monthly with your mortgage payment. The duration of these payments depends on your down payment:
- If your down payment is less than 10%, you'll pay these premiums for the entire loan term.
- With a down payment of 10% or more, you'll only pay for 11 years.
Remember, the exact amount of your annual premium varies based on your loan details, including the loan amount, term length, and down payment size.
2024 FHA Loan Limits for Home Loans
The housing market has remained strong nationwide, and home prices have appreciated, which means FHA borrowers have a larger budget in 2024.
The Federal Housing Administration (FHA) sets loan limits between the national low and high, also known as the 'floor' and the 'ceiling.' In 2024, the national floor for a single-family home is $498,257 in low-cost areas, and the ceiling is $1,149,825 in high-cost areas.
Regardless of where you buy, in 2024, the floor for FHA is $498,257. This loan amount is the lowest limit you'll encounter. At the other end of the spectrum, areas with the highest housing costs have a loan limit of $1,149,825.
Most locations fall somewhere in between the highest and lowest loan limits. If you're wondering what the FHA loan limits are in your county, the HUD website provides an easy-to-use lookup tool on their website.
FHA Loan Down Payment Requirements
Generally speaking, FHA loans require a minimum down payment of 3.5% of the purchase price, sometimes called the minimum required investment (MRI). However, this option is only available if you have a credit score over 580. For credit scores between 500 and 579, borrowers must make a larger down payment of 10%.
Borrowers struggling to raise sufficient funds for a down payment may qualify for state or federal down payment assistance programs.
In most communities, LGI Homes has builder-paid closing cost incentives that may cover a large amount, if not all, of your down payment.
Are you looking for loan options that do not require a down payment? You may qualify for a VA home mortgage with no down payment requirement if you're a veteran. If you're buying a home in an area that offers USDA loans, there are USDA home loan options with no down payment requirement.
FHA Loan Credit Score Requirements
A borrower's minimum credit score to secure an FHA loan is 500. However, this will incur a high down payment requirement, as discussed. If you can improve your score to over 580 or above, you can put 3.5% down.
FHA Debt-to-Income (DTI) Ratio Requirements
Another requirement for an FHA loan is an acceptable debt-to-income (DTI) ratio. The DTI ratio is your total debt divided by your income. It's a crucial metric for judging a home loan's affordability.
The FHA standard for a DTI ratio is 43% or less, and the calculation includes the future mortgage as a debt. Some lenders exercise flexibility and approve applicants with higher DTI ratios, especially with high credit scores. However, as a general rule, you want to have your ratio as low as possible.
FAQs Regarding FHA Loan Requirements
Below is a list of the most frequently asked questions about FHA-backed mortgages. If you don't see the answer to your question, please contact an LGI Homes New Home Consultant for further assistance.
#1: How do FHA Loans compare to conventional loans?
The Federal Housing Administration provides insurance for FHA loans, reducing the lending institutions' risks. Borrowers with higher debt-to-income ratios and lower credit scores are more likely to get approved for an FHA loan, and the down payment requirements are usually lower (3.5% of the home's purchase price). FHA loans necessitate FHA mortgage insurance and an FHA-approved appraisal. On the other hand, for Conventional loans, borrowers will need a higher credit score, a lower debt-to-income (DTI) ratio and generally a larger down payment to qualify.
#2: What are the 2024 Limits of an FHA loan?
FHA loan limits fluctuate according to property values in county and metropolitan areas (MAS). For 2024, the lower limit or 'floor' is $498,257 for single-family residences in low-cost regions, and the high or 'ceiling' is up to $1,149,825 in high-cost areas. These amounts limit how much a borrower may qualify for when applying for a federal loan program before it is labeled a jumbo loan. Visit HUD's FHA Mortgage Limits page to see the maximum loan amounts where you want to live.
#3: What minimum credit score is required to obtain an FHA loan?
Applicants seeking an FHA loan must have a minimum credit score of 500. Many lenders prefer borrowers with a credit score of at least 620 to qualify for 3.5% down and low interest rates. You can find financing if your credit score is between 500 and 579. Still, you may need to put down at least 10% of the home's purchase price, and because your loan is considered 'subprime,' your interest rates may be as much as 10% more.
#4: What do FHA closing costs entail?
When paying closing costs on an FHA-insured mortgage, borrowers who put less than 20 percent down must pay an upfront mortgage insurance premium (MIP); 1.75 percent of the loan principal is due at closing, and annual MIP costs are divided and paid monthly on top of your mortgage payments. Additionally, closing costs go toward lender's fees, third-party expenses, and prepaid items. Learn more about closing costs on new construction homes.
#5: How much do I need as a down payment for an FHA Loan?
The minimum down payment requirement for an FHA loan is typically 3.5% of the home's purchase price, provided your credit score is 580 or higher. If your credit score ranges between 500 and 579, a 10% down payment is usually required. These are general guidelines, and specific requirements may vary based on lenders and other factors.
#6: What types of properties are eligible for FHA loans?
You can get an FHA loan for various property types, including new construction homes, single-family homes, multi-family homes (up to four units), and certain manufactured homes. FHA construction loans are available for borrowers looking to buy land and build a new home. The property must be your primary residence and undergo an appraisal/inspection before a loan is approved.
#7: Do FHA loans require mortgage insurance, and how much?
Yes, FHA loans do require mortgage insurance premiums (MIP). The upfront mortgage insurance premium (UFMIP) equals 1.75% of the home's purchase price. The UFMIP is due at closing. You can roll the UFMIP costs into your mortgage; this will increase your monthly mortgage payment. Annual MIP costs range from 0.75% to 0.15% of the loan amount and are paid monthly along with your mortgage payment. Annual MIP premiums vary based on your downpayment, the loan amount, the loan term, and the loan-to-value (LTV) ratio.
In 2024, for loans less than $726,200, your mortgage insurance premium (MIP) will cost 0.50% if your loan-to-value (LTV) is 95% or less; if your LTV is more than 95%, your annual MIP will cost 0.55%.
If your loan is more than $726,200, your MIP will cost 0.75%; if your LTV is more than 95%, If your LTV is less than 95%, your MIP will cost 0.70%.
Most borrower's mortgage insurance premiums are 0.55% of the loan amount.
#8. How long do FHA loan borrowers pay mortgage insurance premiums?
FHA loan borrowers pay mortgage insurance premiums (MIP) for 11 years if they put 10% down. If they put 3.5% down, MIPs are due for the life of the loan.
#9 Can I Purchase a New Construction Home with an FHA Loan?
You can purchase a new construction home with an FHA home loan if it falls within your county or metropolitan area's 2024 FHA home loan limits.
Because builders build homes to higher standards, new construction homes should easily pass the FHA inspection.
Additionally, you can use an FHA-construction-to-permanent loan to purchase land and build a new home. With an FHA-construction-to-permanent loan, you can finance the land and construction costs, convert the loan into a permanent loan, and pay it off like a traditional mortgage.
Most LGI Homes fall within FHA loan limits!
Purchase a New Construction Home Today With an FHA Home Loan
If owning your home has always seemed out of reach, the more favorable requirements attached to FHA loans make homeownership a reality if you've faced challenges saving a sizable down payment or are struggling to improve your credit score.
With significantly reduced down payments, eligibility for credit scores below 600, affordable interest rates and availability of a wide range of properties (including new construction homes), FHA loans make owning a new home possible.
Like all financial products, they have specific requirements. But, as outlined above, if you and your property meet all the conditions, you could have your keys in hand soon.
At LGI Homes, we can help you through every stage to ensure a smooth homebuying experience. If you want to learn more about how the FHA loan process works when purchasing a new home from LGI Homes, please visit the sales office at any of our communities or contact us about the community and home you want to live in.
Home is Just a Few Clicks Away.
Ready to move into your perfect new home? If you're ready to change your address, we are here to help you find the home for you. Click the button below to start your journey today!
Find a Home