Massachusetts FHA Loan Basics

For all loan types, the minimum down payment is the amount of cash that a buyer is required to put down to qualify for a mortgage. The FHA down payment requirements are similar across all states – a credit score between 570 to 579 requires a minimum down payment of 10% of the purchase price, whereas a credit score of 580 or above permits a buyer to put down as little as 3.5%.

There are various down payment assistance programs in every state, and Massachusetts is no exception. MassHousing Down Payment Assistance offers eligible buyers down payment assistance of 5% on homes in Boston or one of the commonwealth’s 26 Gateway Cities. This program additionally offers assistance of up to $15,000 in all other communities in Massachusetts.

To find reliable organizations that provide down payment assistance in MA, we recommend this tool from Massachusetts Housing Partnership. This search engine is designed to help first time home buyers in Massachusetts find programs offering down payment assistance by region. Buyers will find that from Western Massachusetts and the Berkshires all the way to the Cape, the state of Massachusetts offers numerous options to help with making a down payment.

There is no doubt that living in Massachusetts can be costly. An FHA loan is a reliable option that can help buyers save money on a down payment. Additional benefits of using an FHA loan in MA include:

• Low minimum down payment
• Flexible credit review
• Less restrictive DTI requirements
• Viable option for first time home buyers
• More forgiving of past bankruptcies or foreclosures
• Easier to qualify than conventional loan
• Interest rates are typically lower than conventional rates
• FHA loans are assumable
• Permissible to use gifts toward down payment and closing costs
• Borrow money for home repairs
• Streamline financing options

If you have specific questions about FHA loans in Massachusetts, contact one of our experienced mortgage brokers today.

There are quite a few loan requirements in MA to meet FHA approval. In Massachusetts, the most basic requirements for FHA loan eligibility include:

• Valid Social Security number
• Lawful residency in the U.S.
• Steady employment history for at least 2 years
• Ability to sustain monthly payments
• Approval of the property from and FHA-approved appraiser

Other key FHA loan requirements in Massachusetts include:

• Minimum credit score: 500
• Minimum down payment: 3.5%
• Minimum DTI: 50% or less
• Income requirements: Must have at least 2 established credit accounts and must not have delinquent payments associated with past FHA mortgages
• Loan limits: $356,362 for single family homes in low-cost areas and $822,375 in high-cost areas; loan limits in MA vary by county
• Property requirements: loan must be for principal residence; cannot be used for investment property
• Mortgage insurance: require upfront premium of 1.75%

Step 1: Find a mortgage broker that offers HUD/FHA Loans.

The first step on your journey to applying for an FHA loan in MA is to work with a mortgage broker. A mortgage broker can review your finances to determine which lender is the best fit for your specific situation. Once you’ve decided on a lender, your broker will act as a liaison between you and the lender and represent your interests throughout the loan application process to ensure that you receive favorable terms.

Since mortgage brokers work independently from lenders, they’re able to provide an unbiased perspective and are committed to providing the best possible service for their client.

Step 2: Get pre-qualified.

Mortgage pre-qualification refers to the process in which the lender evaluates your financial situation and determines whether you’re qualified for an FHA loan. It’s referred to as “pre-qualification” because this step happens before you find a home. During this step the lender will review the following:

• Your tri-merge credit report, a comprehensive report that combines your individual credit reports from Experian, Equifax and TransUnion.
• Your debt-to-income (DTI) ratio, which is the percentage of your monthly gross income that goes toward paying debts.
• Your assets, which can include your savings account, 401(k), stock dividends, etc.
• IRS W-2 forms and tax returns from the past two years.
• Pay stubs from the past two months.
• An employee verification letter.

Note that your lender might ask for additional documents to complete the pre-qualification process. If you qualify for FHA loan pre-qualification, the lender will also tell you how much you’ve been approved for. Keep in mind that this number is not a guarantee, but an estimate — the lender reserves the right to rescind at any time if you do not remain qualified.

Although pre-qualification isn’t a mandatory part of the FHA loan application process — you can still be approved for an FHA loan even if you don’t seek pre-qualification — industry experts highly recommend it. Pre-qualification proves to both realtors and sellers that you’re not only ready and willing to buy but are in good financial standing, as well.

Step 3: Find a property you love.

Searching for the right property is the most exciting part of the process, though not necessarily the easiest. There are so many things to consider when touring properties that even the most eager house hunters can get overwhelmed: Does the roof need replacing? Are the electrical, heating and plumbing systems all up to date? Is there sufficient storage space? Fortunately, there are plenty of premade house hunting checklists, such as this one from Homes.com, available online to help you thoroughly evaluate each property you see.

Many home buyers choose to buy older homes or fixer-uppers and renovate or rehabilitate them to save money. If you intend to purchase an older home or a fixer-upper, consider applying for the FHA 203(k) loan. This loan offers all of the same benefits as the standard FHA 203(b) loan, as well as financing for home repairs.

We can help you with the Massachusetts FHA loan process, from getting pre-qualified to closing on your dream home. Schedule a call today to get started.

Step 4: Fill out the application form.

You’ve been pre-qualified for an FHA loan and found the home of your dreams — now it’s time to receive full, official lender approval.

First, you need to fill out a Uniform Residential Loan Application (Fannie Mae form 1003), which asks for information about the type of loan you’re applying for and the property address. You also need to fill out an addendum to this form (HUD form 92900-A). These forms cover an extensive amount of information, from your employment history to recurring debts.

Note that some lenders require you to fill out this form during pre-qualification, though it’s more common to complete this form after finding a property. Also, some lenders might require you to pay a mortgage application fee at this stage, whereas others might roll the fee into closings costs. A good mortgage broker will ask your lender what their policy is so that you’re fully prepared, as well as walk you through any other confusing aspects of application to make the process easier.

Step 5: Get a property appraisal.

Before your FHA loan application can be approved, a HUD-approved appraiser must conduct a property appraisal. Your mortgage broker will order an appraisal on your behalf.

The appraiser evaluates the market value of the property by looking at comparable properties that were recently sold in the area. The appraiser also conducts an in-depth property inspection to ensure that it meets HUD’s Minimum Property Standards. These standards dictate that the home must meet “one of the nationally recognized building codes or a State or local building code based on a nationally recognized building code,” as well as protect the security of the property.

Note that the “security of the property” does not necessarily refer to the security of the home but the security of the lender’s investment. If you are approved for an FHA loan, the property you purchase with that loan acts as collateral for the loan. Should you fail to make your mortgage payments, the lender has the right to foreclose on the property and sell it in an attempt to recoup the money left on the loan. Therefore, the appraiser must determine whether the property will command a suitable price if the lender has to seize it.

Step 6: Receive underwriter approval.

The final hurdle to clear before you receive approval for an FHA loan is underwriter review. An underwriter works on behalf of the lender to determine how likely you are to repay your debt, based on factors such as credit score, credit history, employment history, income stability and DTI.

If you are declined for a home mortgage loan, you’ve reached the end of the road — at least, with this lender. Try to take a “when one door closes, another one opens” approach to rejection; even if you’re rejected by one lender, a good mortgage broker can show you other FHA lending options and help you find the one most likely to approve the loan. Also, since lenders are required to detail the cause for denial in a formal rejection letter, you should treat rejection as a learning opportunity on how you can better prepare for the next try.

If, however, your FHA loan application is accepted, the only thing left standing between you and your new home is closing!

Step 7: Complete closing.

The final step of the FHA loan approval process is closing. During closing, you must carefully review and sign all loan documentation and pay closing costs, which can include the following:

• Appraisal Fee
• Origination Fee
• Documentation Preparation Fee
• Credit Report Fee
• Legal Fees
• Title Search
• Title Insurance
• Homeowners Insurance
• Escrow Fees
• And More

Closing costs are determined by your loan amount, mortgage option, type of property and your city, county or state of residence. Buyers who apply for an FHA loan can ask the seller to pay some of the fees associated with closing, as well as apply monetary gifts from friends and family members toward closing. Once you’ve filled out the necessary paperwork and paid off closing costs, congratulations! You’re officially the proud owner of your new home — now you’re ready to make it your own and to explore all that the Bay State has to offer.

Whether you’d like to find out if you’re eligible for an FHA loan in MA or want to begin the application process, start by finding an experienced, trusted mortgage broker who can guide and support you throughout the process.

Blue Water Mortgage is licensed in New Hampshire, Maine, Massachusetts, Connecticut, Florida, and North Carolina.

With over 150 years of collective mortgage experience serving New Hampshire, Maine, Massachusetts, Connecticut, Vermont, Rhode Island, Florida, North Carolina, Colorado, Texas, Georgia, & South Carolina, the brokers at Blue Water Mortgage have the necessary expertise to close your loan on time and secure the best terms and lowest rates possible. As an independent firm, we aren’t beholden to any one lender, so you can count on us to steer you toward the loan and lender that best meets your unique needs. Contact us today to get started.