There are so many reasons to love living in Maine. A haven for outdoor enthusiasts, the Pine Tree State features 17.5 million acres of forest, 3,478 miles of coastline (more than Califronia!) and the northernmost reaches of the Appalachian Trail. It’s also known for its excellent colleges, its many tourist attractions and the thriving arts, music and restaurant scene in Portland, its largest city.
With so much to entertain, it’s no wonder Maine consistently receives high marks for quality of life, or that it’s caught the attention of many homebuyers. Maine’s relatively low cost of living and safe communities make it an excellent option for first time buyers looking to get their start. If you’re interested in buying your first home in this great state but need some financial assistance, an FHA loan can help. Read the frequently asked questions below to learn more about the FHA loan in Maine and how to determine whether you’re eligible.
What is an FHA loan and why should I consider applying for one?
An FHA loan is a mortgage insured by the Federal Housing Administration, a program office of the U.S. Department of Housing and Urban Development (HUD). The FHA loan program was founded during the Great Depression to help stabilize the housing industry.
There are several benefits for applying for an FHA loan in Maine:
- FHA recipients are eligible for down payment as low as 3.5% of the purchase price
- FHA loans are more forgiving of higher debt-to-income (DTI) ratios and low or nontraditional credit scores
- FHA loans have less strict rules concerning monetary gifts than conventional loans
- An FHA-approved buyer has the option to assume a seller’s FHA mortgage to get lower interest rates
- FHA recipients are eligible for additional financial hardship relief
Is there more than one type of FHA loan?
There are two types of FHA loan: the basic 203(b) loan and the 203(k) rehabilitation loan. According to HUD, the 203(k) loan program “permits homebuyers and homeowners to finance up to $35,000 into their mortgage to repair, improve or upgrade their home.”
A 203(k) loan isn’t based on the current value of the property, but on its projected value after repair/renovation.
What are the eligibility requirements for an FHA loan in Maine?
- In order to be eligible for the FHA loan program, you must have the following:
- A valid Social Security number
- Lawful residency in the United States
- A steady history of employment or of having worked for the same employer for at least two years
- The ability to sustain monthly payments
- A clean credit history over the previous two years
- Property approval from an FHA-approved appraiser
I have a low credit score/nontraditional credit history — am I still eligible for an FHA loan?
Yes. Borrowers with a credit score of 700 or lower can still apply for an FHA loan in Maine. However, you need a credit score of at least 580 to qualify for 3.5% down payment; if your credit score is anywhere between 500 and 579, you might still eligible for an FHA loan, but will need to make a larger down payment (typically 10%).
Even if you have nontraditional or insufficient credit history, you can still apply for an FHA loan — lenders evaluate such applicants on a case-by-case basis.
I have a high debt-to-income ratio — am I still eligible for an FHA loan?
Yes. Compared to a conventional loan, which permits a maximum DTI ratio of 43%, an FHA loan permits a maximum DTI of 45% — and, in some cases, a DTI as high as 50%.
Can I get an FHA loan for a multifamily home?
Yes. You can qualify for an FHA loan to purchase a duplex, triplex or fourplex, so long as you establish one of the units as your primary residence.
What does the FHA loan application process entail?
The typical FHA loan application process includes seven basic steps:
1. Find a mortgage broker that offers HUD/FHA loans and decide which lender is right for you.
2. Get pre-qualified. During this step, the lender will evaluate your credit report, DTI, assets, IRS W-2 forms and tax returns, pay stubs from the past two months and an employment verification letter to determine whether you qualify for an FHA loan.
3. Find a home you love.
4. Fill out a Uniform Residential Loan Application (Fannie Mae form 1003) and addendum (HUD form 92900-A).
5. Get a property appraisal from an FHA-approved appraiser. Your mortgage broker will order an appraisal on your behalf.
6. Receive underwriter approval. The underwriter will determine how likely you are to repay your debt based on your credit score, credit history, employment history, income stability and DTI.
7. Carefully review and sign all loan documentation and pay closing costs.
Keep in mind that every borrower (and borrower’s journey) is unique, so your FHA application process might look a little different.
What is a mortgage broker and how can they help me get an FHA loan in Maine?
A mortgage broker acts as an intermediary between the borrower and the lender. A good broker will review your finances to determine which lender best fits your individual situation and will represent you throughout the loan application process to ensure you receive favorable terms.
If I’m struggling financially, can I get additional assistance?
Yes. If you find that, even with an FHA loan, you struggle to make monthly payments, you might qualify for relief in the form of a temporary period of forbearance, a modified loan with a lower interest rate, an extended payback period or a deferred loan balance at no interest.
The FHA loan program in Maine also has generous terms concerning gifts, down payments and closing costs. If you’re approved for an FHA loan, you can use monetary gifts from family members or friends toward your down payment or closing costs. Some sellers offer to cover a percentage of the closing costs (up to 6%) to incentivize buyers to make an offer on their property.
Is there an occupancy requirement for FHA loans and, if so, how long is it?
Yes. According to the HUD, the borrower must make the home their principal residence within 60 days of closing and maintain occupancy for at least one year.
Will I be able to refinance an FHA loan?
Yes. There are a few refinancing options for FHA loans:
- Streamline: Enables borrowers to refinance an existing FHA loan to reduce their mortgage rates. The FHA Streamline loan is a popular refinancing option because borrowers don’t need a full credit check or income verification to qualify — they just need to have paid their mortgage on time for 12 months.
- Cash-Out: Enables borrowers to pay off their existing mortgage and take out a larger loan than what they currently owe based on the equity that’s been built up in the home’s value.
- Simple: Enables borrowers to transition from their current FHA loan to a different type of loan, such as a conventional loan or an ARM. Borrowers who apply for the FHA Simple loan must undergo credit qualification and a home appraisal to determine how much the home has increased in value.
Can I buy a fixer-upper with an FHA loan?
Yes. However, due to HUD’s Minimum Property Standards, it’s more difficult to receive approval from an appraiser for a fixer-upper. If you’re interested in looking exclusively at fixer-uppers, consider applying for an FHA 203(k) loan to get the most for your money.
What are the HUD’s Minimum Property Standards?
According to HUD, “each property insured with an FHA mortgage [must] meet one of the nationally recognized codes or a State or local building code based on nationally recognized building code.”
What are the drawbacks of an FHA loan?
There are a few things you should be aware of before you decide whether to apply for an FHA loan.
- Borrowers must have a credit score of at least 580 to qualify for the low down payment advantage.
- HUD’s Minimum Property Standards reduces the list of available properties — and an especially zealous appraiser could deny approval based on a minor infraction.
- Some sellers avoid FHA loans/borrowers for fear that the buyer might run into financial issues and back out of a tentative sales agreement or that HUD’s strict Minimum Property Standards might disqualify their property from eligibility.
- FHA loans are considered higher risk than other loans, so they’re subject to higher mortgage insurance rates.
What is the lending limit for an FHA loan in Maine?
FHA mortgage lending limits in Maine vary from county to county based on factors such as median cost of housing per county and type of housing. Below are the lending limits for an FHA loan in Maine (by county) for 2018.
Choosing to apply for a loan — and which loan to apply for — is a big decision, one that can easily become overwhelming without the right resources or support to back you. Fortunately, an experienced mortgage broker can walk you through the process.
The brokers at Blue Water Mortgage Corporation have over 150 years of collective experience serving clients throughout New England. As independent brokers, we offer a variety of loans from a wide variety of lenders and always put our clients first. It’s our mission to develop a strong, long-lasting personal relationship with every one of our clients and to help them finance the home of their dreams. If you’d like to learn more about the FHA loan program, how to apply for an FHA loan in Maine or about Blue Water and the services we offer, talk to one of our experts today.