Last Updated on February 27, 2023 by Luke Feldbrugge
The goal of owning a home is high on several people’s goal lists. But it can be hard to save for a 20% down payment and get your credit score to excellent. Luckily, FHA home loans for nurses are a great home loan option. These less common, but still very obtainable mortgages, are available to those with lower credit scores. FHA home loans also only require up to 10% for the down payment. Learn more about FHA home loans and how they are a great option for nurses.
What is an FHA Loan?
FHA stands for Federal Housing Administration. A FHA home loan is a loan insured by the Federal Housing Administration and distributed by an approved lender. Congress created the Federal Housing Administration in 1934 to stimulate the housing market after the Great Depression. This organization continues to help many Americans own a home and could do the same for you. Borrowers can get up to 96.5% of their total home value, meaning nurses only need a 3.5% down payment.
These loans are designed for low to moderate-income earners who also have low credit scores and are generally looking for mortgages with a lower minimum down payment. You can use FHA home loans if this is your first home or not.
Benefits of FHA Loans for Nurses
Advantages of FHA Loans
Nurses around the country can get the following advantages with FHA home loans:
- Smaller Down payments – FHA home loans for nurses require a smaller down payment compared to conventional home loans. Borrowers only pay 3.5%-10% of their total home loan as their down payment. For a $250,000 home, that’s only $8,750.
- Flexible qualification guidelines – The qualification criteria are not as strict as you find on conventional loans, and most nurses can qualify. The main requirements with FHA is a good work and credit history.
- Lower credit scores – FHA offers loans to people who have a low credit score and cannot get a loan from conventional lenders.
- Assumable – FHA loans are assumable, so if you want to buy a house from someone who has not finished paying their loan, you can take over their payments instead of getting a new FHA loan.
- Closing Costs – often times, closing costs can be rolled into your home loan, so you don’t need to have this money upfront.
Disadvantages of an FHA Loan
While those advantages make the FHA loan seem great, there are a few things to note about FHA loans:
- Upfront Funding Fee – There is now an Upfront Funding Fee of 2.25% of the total financed amount paid when you close on the loan.
- Mortgage Insurance Premiums (MIP) – All FHA home loans for healthcare professionals must include MIP for the life of the loan. The current rate for MIP is 0.85 percent and this payment is typically rolled into your monthly mortgage payments. MIP protects the mortgage lender in case you are unable to pay the loan back. This insurance is a big reason why home buyers with lower credit scores and less cash to put down for a down payment still have the ability to purchase a house.
- Debt-to-Income Ratio (DTI) – Your debt-to-income ratio is what your expenses are versus what your income is. Your expenses should not be more than 43% of your gross income. This means all you debts, like car payments and student loans, should not be more than 43% of your gross (pre-tax) pay. Similar DTI is needed for most home loans for nurses.
Generally, an FHA loan will cost a home buyer more money over the term of the loan versus other home loans such as a conventional loan, VA loan or USDA loan due to the higher interest rate and MIP costs. But, it still allows you to get the home you want for you and your family!
Regardless of the type of loan you go with, you can use Homes for Heroes to save even more. Our mortgage specialists are located nation-wide, and are willing to lower their fees for nurses like you. If you work with our mortgage, title and inspection specialists, you can save $500 on lender fees, $150 on title services, and $50 on a home inspection. All because you are a nurse!
Plus, if you work with our real estate specialists, who also live and work in your community, you’ll receive Hero Rewards after your closing. When you buy and/or sell a home with our local real estate specialist, you will receive a Hero Rewards check for $700 for every $100,000 of the purchase price. There is no extra documents or work on your end to receive the check. It’s just our way of saying thank you. Sign up now to start the process, with no obligation for you to use our house buying program.
FHA Home Loans vs. Conventional Home Loans
While there are some disadvantages to a FHA Loan, there are still many advantages of FHA home loans for nurses over conventional loans.
- Individuals looking to get a FHA home loan for nurses must have a credit score of at least 580 to get a mortgage with a down payment of 3.5%. On the other hand, to get a conventional home loan, you usually must have a credit score of 640 and above.
- Down payments for conventional loans range between 3% to 20%, depending on your credit score. Down payments on FHA loans, however, are between 3.5 and 10%. Bear in mind that the lower your credit score, the higher the down payment for FHA Loans, up to 10%.
- FHA loans and conventional loans also differ in length of terms. FHA loans offer terms in 15 or 30 years, while you can pay a conventional loan in 10, 15, 20, or 30 years.
- Down payment assistance programs are available for FHA loans but not conventional loans.
- 100% of the down payment can be a gift when you apply for the FHA home loan. But, only part of the down payment can be a gift with a conventional home loan. You will need to provide documentation of the gift to your lender.
How to Qualify for a FHA Home Loan
To qualify for an FHA home loan, you need to fulfill the following requirements:
Have Verifiable Income
To qualify for an FHA home loan, you must have a verifiable income. Your lender will need to see your tax returns and pay stub to confirm this. They will need to verify that you have been working for at least the last two years, although it does not need to be for the same employer. If you have been a nurse in two different hospitals, that is ok. However, you possibly won’t qualify if you worked, for example, as a teacher in the same 2 years.
Be Able to Afford Payments
You must be able to comfortably pay your home loan and other debts you may have. The general rule is that your mortgage should not be more than 35% of your total wages before taxes. As we mentioned above, your DTI needs to also be under 43%. If that cannot work with your income, you will need to work and reduce the total amounts you owe before buying a home, or you possibly need to look at houses in a different price range.
Save for Down Payment
Before you get the loan, you will need to save at least 3.5% of the value of your home. If your credit score is less than 580, you will most likely need to pay up to 10% of the home value as your down payment. There are also many other costs at closing that you will need to prepare for financially. Your real estate agent and mortgage specialists will be able to walk you through some of the other costs, like earnest money.
Establish Credit History
Your lender will have to check your credit history. If you don’t pay your credit cards, student loans, or other debts regularly on time, you’re unlikely to be approved. Make sure that all your bills are paid on time to ensure that your loan is approved. The minimum FICO credit score to get an FHA home loan is 580, but bear in mind that your lender might require a higher credit score. If you have a low credit score, ensure that you check that your preferred lender accepts that score. If you do not know your credit score, you can use online resources to look it up.
Keep in Mind Home Value
FHA loans have strict guidelines on the amount you can borrow with the loan. The range for FHA-approved loan will vary county by county, but FHA loan limits range from $356,362 to $822,375.
The house you are taking a loan out for also has to meet strict health and safety standards. This is to ensure that the house will not become condemned, possibly forcing you to default on your loan. You will need to do an inspection on your potential house to show to your mortgage lender and the FHA that the house is not in danger of any hazards.
Nurses Can On FHA Loan Closing Costs
Homes for Heroes mortgage specialists work with FHA home loans for healthcare professionals and provide significant savings on their lending fees to healthcare professionals like you. That’s how nurses like you can save an average of $3,000 on the purchase of your new home.
To get started, sign up today and Homes for Heroes will connect you with specialists in your area. Those specialists will be able to answer your questions, discuss whether the FHA home loan or another type of loan is right for you, and put you on the right path toward home ownership.