FHA Debt Consolidation

Will FHA Loan Limits Increase?

FHA loan limits are determined by the Federal Housing Administration (FHA) and are typically adjusted on an annual basis to keep up with the median house prices. We can expect the FHA loan limits to rise if the median price of a home rises as well. The loan limits are always determined by the county and or metropolitan statistical area (MSA), so the limits in the county you are purchasing or refinancing in, may be different than in the surrounding counties.

What Credit Score is Needed to Buy a House in Maryland?

FHA provides the most flexible qualification terms to purchase a home in Maryland or any other state. FHA guidelines allow for anyone to purchase a home with a credit score as low as 500, however if your credit score is below 580, then you are required to put down a minimum of 10% as your down payment, versus if your credit score is 580 or above, the minimum required down payment is only 3.5% of the purchase price. The lower your credit score however, the more difficult it may be to qualify but FHA doesn't judge your credit score as harshly as other types of loans.

How Much are Closing Costs in MD?

When it comes to purchasing a home in the state of Maryland, depending on the home you are purchasing and your financial qualifications, closing costs will typically run between 2% to 4% of the purchase price of the home. When it comes to refinancing a home in the state of Maryland, the closing costs run much lower, typically around 1% to 2% of the loan amount.

When purchasing a home with FHA financing, the seller can contribute up to 6% of the purchase price towards the buyer's closing costs. This is why most buyer's agents will ask for "seller help" in the offer because for many buyers, if the seller doesn't help pay for the closing costs, they may not be able to purchase the home.

FHA Debt Assistance

FHA offers a cash out refinance option that allows you as the homeowner to borrow up to 80% of the value of your home. The cash that you take out can be used to pay off existing debt, whether that be credit cards, car loans, student loans and so forth.

Keep in mind, if you do this, you are adding the debt that you paid off into your total mortgage balance. That is why this program is typically not recommended unless the interest rates you are paying on your credit cards and other loans are far higher than the rates on your new mortgage. Also, the closing costs that you'll pay to obtain this new mortgage are also being added to your mortgage balance so you want to make sure that you are saving enough money in the long run to make this work for you.

Consolidating Debt Into First Time Mortgage

When purchasing your first home, you will not have the ability to consolidate any existing debt into your mortgage. That being said, if you do have high interest credit card debt or other loans, you can use the equity that you may have in your home to consolidate that debt into a second mortgage or home equity line of credit (HELOC). This is only viable for people who have put enough money down on their home to have at least 20% equity in their property. If you have less than 20% equity in your home, then this type of financing will not be available to you.

Is it Hard to Get a FHA Loan?

FHA provides the most flexible qualification terms to purchase a home in Maryland or any other state. FHA guidelines allow for anyone to purchase a home with a credit score as low as 500, however if your credit score is below 580, then you are required to put down a minimum of 10% as your down payment, versus if your credit score is 580 or above, the minimum required down payment is only 3.5% of the purchase price. The lower your credit score however, the more difficult it may be to qualify but FHA doesn't judge your credit score as harshly as other types of loans.

What is the HOPE Program?

The HOPE program, which stands for: HOMEOWNERSHIP AND OPPORTUNITY FOR PEOPLE EVERYWHERE, helps low-income people buy public housing units by providing funds that nonprofit organizations, resident groups, and other eligible grantees can use to develop and implement homeownership programs. Grantees of these funds include public housing authorities, resident management corporations, resident councils, nonprofit organizations, housing cooperatives, and public entities. The ultimate goal is to for these grantees to provide low-income families the ability to become homeowners.

Consolidate Debt by Refinancing Your Mortgage

There are several ways to consolidate your debt by refinancing your mortgage. The first and most widely used method is to utilize a cash-out refinance where you take out additional funds over and above your current mortgage payoff, and then use those funds to pay off your existing debt. FHA allows up to 80% of the value of your home to be used for a cash-out refinance, while Conventional financing allows for up to 80% of the value as well.

One thing to keep in mind is that if you go above a certain loan-to-value when refinancing, you will be required to pay mortgage insurance on your new loan. For FHA loans, mortgage insurance is required regardless of the loan-to-value, while for Conventional loans, mortgage insurance is only required when your loan-to-value is above 80%.

How Can Refinancing Help Me Consolidate My High-interest Debt?

When you refinance your mortgage and take out additional cash, you are essentially converting your high-interest debt into a lower interest mortgage. For example, if you have $20,000 in credit card debt at an average interest rate of 18%, and you consolidate that debt into your mortgage at a rate of 4%, you are saving 14% in interest charges alone. Additionally, you are converting a minimum payment that is designed to keep you in debt for many years, into a fixed payment that will pay off the debt in a set period of time.

The key to making this work is to not run up your credit cards again after you have paid them off. If you do, you will be in a worse position than you were before because you will have the same credit card debt plus a higher mortgage balance.

Ready to Consolidate Your Debt?

Let us help you find the right refinance option to lower your monthly payments.