FHA Home Loan may be the best option if you’re looking for a home loan in Missouri with lower down payment and credit score requirements.
FHA Home Loans provide many benefits that aren’t available with other mortgage loan options. However, it’s important to understand the requirements of FHA Loans before getting too far along in the process!
We’ll review the Missouri FHA Loan requirements, limits, and how to apply right now.
What is an FHA Loan?
FHA Loans are mortgages from private lenders that the federal government insures, making banks and other lenders more willing to work with “higher risk” borrowers. So if you’re a first-time homebuyer or have a low-to-moderate income, an FHA Loan can be a great option.
The FHA Loan program traces its roots back to the Great Depression. It was created to give banks insurance protection and assist homeowners when foreclosure rates and loan defaults were rising.
It now primarily operates to help borrowers that can’t afford a down payment or won’t qualify for private mortgage insurance (PMI).
What is the FHA?
The Federal Housing Administration is a government agency operating within the U.S. Department of Housing and Urban Development (HUD). The FHA’s mission is to make mortgages accessible and affordable for lower-income homeowners, first-time homebuyers, multi-family rental properties, hospitals, and residential care facilities. They do this by insuring the loan to protect mortgage lenders from potential losses.
The FHA was established in 1934 when the stock market and then the housing market crashed. With down payments at 30-50% and short mortgage periods of five to 10 years, home ownership was out of reach for working-class families.
FHA-secured loans helped reduce down payment requirements and grew the mortgage lifespan to 20-30 years.
The FHA has insured over 50 million mortgages throughout the U.S. and is the largest mortgage insurer in the world. FHA Loans have been a success for many homeowners by offering greater affordability and access to credit.
What is an FHA Loan Limit?
An FHA Loan limit is the maximum loan amount you can borrow while still having the FHA insure the loan.
How are FHA Loan Limits Determined?
The FHA determines loan limits based on region, cost of living, average construction costs, and the average home sale price. The FHA updates the FHA Loan limit every year for each state and county.
FHA Loan limits are typically 115% of the median price of a state or city’s average home. Areas with a lower cost of living have a “floor” limit that’s lower than average, while areas with a higher cost of living have a “ceiling” limit that is higher than average.
Take a look at some past FHA Loan limits to see.
The floor limit is for lower-cost areas, the high-cost areas get the ceiling limit, while Alaska, Hawaii, Guam, and the Virgin Islands are designated as “special exceptions” and can have the highest FHA Loan limit.
What are the FHA Loan Limits in Missouri?
In most counties of Missouri, the FHA Loan limit is $420,680 for a single-family home. Duplexes have limits of $538,650, tri-plexes are $651,050, and a four-flex is $809,150.
There are a few counties that have slightly higher FHA loan limits. They are: Bates, Caldwell, Cass, Clay, Clinton, Jackson, LaFayette, Platte, and Ray. Their limits are $431,250 for a single-family home, duplexes for $552,050, triplexes for $667,350 and four-flex for $829,350.
FHA Loan Requirements in Missouri & How to Apply
Individual lenders might have some variations in their FHA Loan requirements, but the basics are the same. Before anything else, you’ll need:
- Valid Social Security number
- Proof of residence in the United States
- Legal age according to your state
After you meet these qualifications, an FHA Loan is easier to obtain than a traditional mortgage. Here are some more specific FHA Loan requirements that apply in the state of Missouri:
- Minimum credit score: 500
- Loan term length: 15 or 30 years
- Minimum down payment: 3.5% for credit scores over 580; 10% for credit scores between 500-579
- Down payment gift: Entire down payment can be a gift
- Down payment assistance: Missouri Housing Development Contract
- Mortgage insurance: UPMIP (upfront mortgage insurance premium) and a regular MIP (mortgage insurance premium)
- Mortgage insurance premiums: 1.75% upfront; 0.85% monthly mortgage
If your credit score is less than 500, consider lowering your debt-to-income ratio, setting alarms to avoid late payments, or delaying your mortgage application until your credit score is a bit higher.
FHA Loans in Missouri
Current FHA Mortgage Rates in Missouri
The current FHA mortgage rate in Missouri is 5.125% and has an APR of 5.284%. APR stands for annual percentage rate. It’s the yearly cost of interest charged to borrowers over the term of a loan or income earned on an investment.
What are the closing costs on FHA Loans in Missouri?
The closing costs on an FHA loan in Missouri generally run between 2% to 6% of the home’s sale price. Missouri has some of the lowest closing costs in the country. According to the 2021 report by ClosingCorp, the average closing cost is $1,290 for a $177,915 home.
What will disqualify an FHA Loan?
FHA Loans can be disqualified if the home:
- Isn’t residential: If the home is not used for residential purposes and has 50% or more floor space taken up for non-residential use.
- Is not compliant: FHA Loans will not be awarded to homes in disrepair. However, there are FHA Rehabilitation loans for homes that do not pass an appraisal.
- Doesn’t have the proper insurance requirements: If certain natural disaster insurance is not available in an area, it can eliminate eligibility.
- Is too close to potential hazards: The home can’t be near areas considered “potential hazards,” like high voltage electrical wires, mining, and high-pressure gas lines.
- Transient occupancy properties: This includes bed-and-breakfasts, condos, hotels, Airbnbs, and other rentals that last for 30 days or less.
Types of FHA Loans
There are specialized FHA mortgage loans for specific audiences that can help you afford your dream home. Here’s a bit about each one:
Traditional Mortgage Loan: This is a regular mortgage loan that applicants can use for their primary residence.
203(k) Mortgage Program: This is a traditional mortgage with extra money added for home repairs and renovations. This is the loan for you if you purchase a home that could use a little work after move-in.
Section 245(a) Loan: This Graduated Mortgage Payment (GPM) loan starts with monthly payments at a certain amount that increases over time. You can also opt for the Graduated Equity Mortgage (GEM) loan, which increases monthly principal payments specifically over time to gain more equity in your home faster.
FHA Energy-Efficient Mortgage: This loan includes extra funds to make your home more environmentally friendly. Examples of eligible upgrades include new solar panels or insulation to retain heat.
Home Equity Conversion Mortgage (HECM): This is a reverse mortgage that offers mortgage payments to the applicant in exchange for equity in their home. You can receive the payments every month or withdraw them at your discretion through a line of credit.
FHA Loans vs. Conventional Loans
FHA loans have much to offer over conventional loans, such as:
- Lower qualifying credit scores
- Lower down payment requirements with more flexibility regarding the origin of the down payment (personal savings, gift, or even grants).
- Candidates can have a higher debt-to-income ratio
While these benefits make FHA loans appealing, there are some conditions to be aware of:
- FHA loans are only available for certain types of properties
- Some loans may require closing costs that don’t exist with conventional loans
- Every FHA loan requires mortgage insurance built into the loan
- Lenders may have specific rates, fees, and approval processes in addition to FHA requirements
- FHA loan limits restrict your borrowing power since they only insure up to a certain amount
Conclusion: Getting an FHA Loan in Missouri
Since 2002, The Home Loan Expert has closed over $500 million in FHA loans for families throughout the United States. Our easy process for home loan approval allows us to quickly process and approve FHA loans for families looking to get established and find their dream home.
If you’re considering an FHA Loan in Missouri, you’ll want an experienced team to get you through the application process and to your closing. We’re always happy to sit down with our clients and offer them personalized support to make their homeownership dreams come true.
Contact us today for a consultation!
Hailey Friedman
