Best FHA Loans in Maryland

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Contributor, Benzinga
December 5, 2019

Maryland is home to Baltimore and the Chesapeake Bay. It’s where Francis Scott Key wrote the American national anthem and it borders on D.C., making it a popular choice for federal workers. Ready to buy a home there? Here’s everything about an FHA loan Maryland home buyers need to know. 

The Best FHA Lenders in Maryland:

What is an FHA Loan?

A Federal Housing Administration (FHA) home loan is a popular choice for home buyers. Why? These loans have a few appealing qualities:

  • Low credit score requirements: Not every home buyer has perfect credit. Borrowers experience credit difficulties for many reasons, including job loss or medical bills. Low credit score requirements open up possibilities for these borrowers. 
  • Low down payment requirements: You don’t need a 20% down payment to get an FHA loan. You may be able to make a down payment as low as 3.5%. 
  • Popularity: Lots of lenders offer FHA loans. It’s relatively easy to find a lender that is familiar with how these loans work and how to expedite the process. 

The Federal Housing Administration oversees and insures FHA loans. The National Housing Act of 1934 established the FHA to help make home loans more widely available. Mortgages were much more difficult to get before Congress passed the act. Many borrowers who could get a mortgage lost them during the Great Depression. The FHA’s goal was to change that.  

Today, the FHA insures more than 1 million new mortgages each year. FHA mortgages don’t have any income limits, and you don’t have to buy a home in a particular area. You have a good chance of qualifying as long as you meet the requirements and you can afford the mortgage. 

Requirements for an FHA Loan

Ready to apply for an FHA mortgage? Here are the requirements you need to meet:

  • Owner-occupancy: Borrowers must live in the home they plan to purchase with an FHA mortgage. You can purchase homes with up to 4 units, but must occupy 1 of the units. There are some exceptions, but in general, you can’t use an FHA mortgage to buy a vacation or 2nd home. 
  • No recent foreclosures: Most borrowers must wait 3 years after a foreclosure to get an FHA loan. 
  • Debt-to-income: Lenders must look at the relationship between a borrower’s debt payments and income. To do this, lenders add up all your monthly debt payments, including your potential mortgage. They compare this total to your pretax monthly income. Your debt-to-income ratio must be 43% or less to qualify. 

Let’s say you have $1,500 in total debt payments — your credit card minimums, car loan, student loans and upcoming mortgage per month. Your monthly income is $4,000 before taxes. This gives you a debt-to-income ratio of 37.5%, which would qualify you ($1,500 divided by $4,000 multiplied by 100).

  • Down payment: You must make a down payment of at least 3.5% if your credit score is 580 or higher. This down payment must be made with cash or a cash equivalent, like a cashier’s check. Lenders will verify the source of your funds. You will need to make a down payment of 10% of your credit score is 500–579. The FHA doesn’t insure mortgages for borrowers with credit scores of less than 500. 
  • Mortgage amount: The FHA limits the size of the mortgages it insures. These limits vary by area. In most areas, the limit for a single-family home is $314,827. In areas with higher home prices, the limit is $726,525. Homes with more units have higher mortgage limits. You can look up the mortgage limits in your area on the FHA website

Lender Specifics for FHA Loans

It helps to know what to expect before you start contacting lenders for a purchase quote. Here are the minimum credit scores and more for several Maryland FHA lenders. Keep in mind that while the FHA allows credit scores of 500 or higher, many lenders have higher credit score minimums. 

LenderMinimum Credit ScoreLoan Servicing Minimum Down Payment
Bank of America620In-houseUnspecified
Quicken Loans®620In-house3.5%
Chase620In-house3.5%
PNC620In-house3.5%
Citibank620In-houseUnspecified

Interest Rates for FHA

Your FHA mortgage rate is the amount you pay to borrow the money to buy or refinance a home. The FHA doesn’t set interest rates. These are between you and your lender. You’ll see 2 types of interest rates when you get a purchase or refinance quote

Adjustable-rate: An adjustable-rate mortgage (ARM) has an interest rate that can change. Lenders can adjust it up or down based on market conditions. When lenders change the interest rate, it also changes the monthly payment. Most ARMs start with a fixed rate for a set number of years. Lenders change the interest rate after that on an established schedule. A 5/1 ARM has a 5-year fixed-rate period followed by an annual adjustment. 

Fixed-rate: A fixed-rate mortgage has the same interest rate for the term of the mortgage. The monthly payment stays the same as well. 

Do You Need Mortgage Insurance?

All FHA mortgages require you to pay for mortgage insurance. Mortgage insurance benefits the lender, not you. If borrowers are unable to pay their mortgage, the home goes into foreclosure. The lender takes possession of the home and sells it. The home may not sell for enough to pay the balance of the mortgage. Mortgage insurance makes up the difference to the lender. 

FHA loans have 2 types of mortgage insurance. You pay an upfront premium of 1.75%, which you can roll into your mortgage. You also pay an annual premium. The amount of your annual premium varies depending on the size of your mortgage, your down payment and your mortgage term. The annual premium ranges from 0.70% to 1.05%.

How to Apply for an FHA Loan in Maryland

FHA loans are all offered through private lenders. The first step to applying for an FHA loan is to contact a few FHA lenders for a quote. Once you review your quotes, choose a lender for preapproval. While you don’t have to apply for preapproval, it makes your bids a lot stronger when you find a home you like. 

While you’re looking for homes, consider putting together an application packet. This is a packet of all your financial documents. Lenders are required to carefully review your finances to ensure you can afford a mortgage. Gather together and organize documents such as:

  • Your most recent tax returns
  • Your most recent bank statements
  • Your W-2s or 1099s from the past year
  • Your most recent pay stubs 

Once you’ve found a home and the seller accepts your offer, complete a formal application with a lender. The lender will review your application and may ask for additional information. Provide this information as soon as you can to keep the process moving. Your lender will let you know its decision after processing your information. 

Best Lenders for FHA Loans in Maryland

Before you start getting mortgage quotes, learn about the 5 best mortgage companies in Maryland for FHA loans:

1. Best Overall: Quicken Loans®

Quicken Loans® makes getting an FHA loan simple. The website is clean and easy to navigate. You can chat with an expert right from the home page if you have any questions.

It has its mortgage rates online so you can do a quick comparison with other lenders. In addition to FHA loans, Quicken Loans® offers jumbo, conventional, VA and USDA mortgages. 

2. Best for a Variety of Options: New American Funding

An FHA loan is ideal for those who have less than perfect credit or no credit history. You'll have the option of 30 year fixed or 15 year fixed loans with a low down payment option. To qualify for an FHA loan though New American Funding you'll need a credit score of 580 or higher, 3.5% - 10% down depending on credit score and proof of steady income. Along with that, mortgage insurance is required, there are higher home inspection standards and the loan will have to be used for a primary, residential property. 

New American Funding has a A+ rating with the BBB and over 236k reviews. There's something to be said about reputation and borrower satisfaction when it comes to New American Funding. Apply today for an FHA loan.

3. Best for First Home Time Buyers: PNC

PNC is one of the best lenders for first time home buyers in Maryland due to its branches. A lot of first time home buyers like to work with a lender in person. This way, you can easily ask your questions and get real-time answers. PNC has branches throughout Maryland.

You can do an online preapproval and check interest rates online. PNC offers FHA mortgages, conventional mortgages, jumbo mortgages and VA loans. 

4. Best for Service Members: Veterans United

If you’re a current service member, a veteran or a family member, consider working with Veterans United.

Service members face unique challenges when it comes to home ownership, so it’s best to work with a lender that has experience. Veterans United offers FHA mortgages as well as VA and conventional mortgages so you can explore all your options.  

Is an FHA Loan Right for You?

When you’re reviewing loan quotes, look carefully at the fees, interest rates and APR. Your interest rate doesn’t include any fees. Your APR includes fees, so it’s typically higher than your interest rate. Most quotes include both rates. 

Each person’s situation is different. FHA mortgages are a great fit for many homeowners.

Frequently Asked Questions

Q

1) Q: How do I get pre-approved?

A

First, you need to fill out an application and submit it to the lender of your choice. For the application you need 2 previous years of tax returns including your W-2’s, your pay stub for past month, 2 months worth of bank statements and the lender will run your credit report. Once the application is submitted and processed it takes anywhere from 2-7 days to be approved or denied. Check out our top lenders and lock in your rate today!

Q

2) Q: How much interest will I pay?

A

Interest that you’ll pay is based on the interest rate that you received at the time of loan origination, how much you borrowed and the term of the loan. If you borrow $208,800 at 3.62% then over the course of a 30-year loan you will pay $133,793.14 in interest, assuming you make the monthly payment of $951.65. For a purchase mortgage rate get a quote here. If you are looking to refinance you can get started quickly here.

Q

3) Q: How much should I save for a down payment?

A

Most lenders will recommend that you save at least 20% of the cost of the home for a down payment. It is wise to save at least 20% because the more you put down, the lower your monthly payment will be and ultimately you will save on interest costs as well. In the event that you are unable to save 20% there are several home buyer programs and assistance, especially for first time buyers. Check out the lenders that specialize in making the home buying experience a breeze.

Get Ready for Take Off

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You can work at your own pace and someone is always there to answer your questions — 24 hours a day, 7 days a week. Want a fast, convenient way to get a mortgage? Give Rocket Mortgage® a try.

About Melinda Sineriz

Melinda specializes in writing about mortgages. student loans, personal loans, insurance, managing credit and debt, and credit cards.