Joint FHA Loan: Everything You Should Know

A joint FHA loan enables two people to apply together for a home loan when their incomes may not be enough to qualify individually. This type of loan allows borrowers to pool funds to meet the necessary financial requirements. A joint FHA loan benefits married couples, domestic partners, friends, or even co-owning family members.

How Joint FHA Loans Work

Joint FHA loans are insured by the Federal Housing Administration (FHA), which provides an income guarantee for a lender. This insurance allows lenders to offer more favorable terms, such as lowering down payments and accommodating credit requirements. Often, FHA loans require at least a 3.5 percent down payment and are credited to people with credit scores of at least 580.

Understanding Joint FHA Loan Eligibility

It is vital to know the eligibility conditions before considering any joint FHA loan application. RenoFi is committed to providing information to help you familiarize yourself with these criteria. 

Credit Scores and Financial History

For a joint loan, the lender will examine the credit scores and financial history of both applicants. Ideally, both should have credit scores of at least 580 to be eligible for the low down payment of 3.5 percent. The required down payment is 10 percent for applicants with scores between 500 and 579. The lender will also check the applicants’ DTI ratio before offering them a loan, requiring that they are in a position to meet the repayments.

Confirm Employment and Income

Lenders will confirm the employment and income of both parties to make sure they have the financial resources to make the monthly payments.

Primary Residence Requirement

The property that applicants want to use a joint FHA loan to purchase must be the principal residence for both applicants. This requirement ensures that the loans are for homes where the borrowers will live, as opposed to investment properties.

Down Payment and Closing Costs

Although the joint FHA loan allows for lower down payments, borrowers must still come up with the minimum downpayment from personal savings, family gifts, or grants. Additionally, borrowers should consider closing costs and have enough liquid cash to pay any of these expenses.

Mortgage Insurance Premiums

Joint FHA loans have mortgage insurance, fees that are charged to the borrower to protect the lender. Borrowers must pay an upfront premium at closing and an annual premium, usually divided into monthly payments.

Beyond understanding these critical criteria, there are other ways you can be prepared to seek a joint FHA loan. At RenoFi, we are here to help support you throughout the application process!

FHA Borrower and Cosigner Requirements

Borrower Qualifications

All borrowers applying for joint FHA loans should meet the FHA’s eligibility standards. These include a stable job history, a relatively low minimum credit score, and the ability to shoulder a certain debt-to-income level. The borrowers must also intend to live in the property as their primary residence.

Cosigner Candidates

In a joint FHA loan, if one borrower does not meet all the requirements, a cosigner can be helpful. In a cosigned mortgage, the cosigner’s income and credit are put on the application. All borrowers are responsible for the loan and must meet the same criteria as the primary borrower. A cosigner must be someone who understands what they are getting themselves into and is willing to help.

Remember that open and honest communication is critical when going into a joint FHA loan. All parties concerned should share details of expectations and financial obligations to smoothen the borrowing process.

Benefits of RenoFi Loans

If you are looking at different ways to get funds in order to renovate your home, you may want to consider getting a RenoFi loan before getting a joint FHA loan. RenoFi offers a new solution by letting you borrow against the future value of your property post-renovation, rather than borrowing against its current value. 

For example, imagine your home is currently valued at $500,000 and your outstanding mortgage balance is $400,000. You are planning a renovation and expect that the after renovation value of your home would be approximately $640,000. Your current loan-to-value ratio (LTV) is at 80%, which means that you effectively can’t borrow anything to fund your renovation. A RenoFi loan, however, would allow you to go as high as 150% LTV or 90% LTV using the after renovation value. 

So in this example, while using a standard home equity loan results in your borrowing power being $0, a RenoFi loan allows you to borrow up to $176,000 thanks to the after renovation value of your home! 

If you are considering a home renovation, RenoFi is by far the smartest way to finance your project. Learn more and explore your borrowing options here. 

FHA Appraisal and Property Guidelines

You should know federal property requirements when considering joint FHA loans, which ensures that potential existing property is safe, sound in construction, and generally meets basic livability standards.

Structural Integrity

Your home must have a solid foundation and sound structure without any defects or extensive unfinished renovations that may lead to its instability.

Livability Standards

The property must provide a safe and healthy living environment, including working heating, plumbing, and electrical systems. There should also be adequate lighting and ventilation in all rooms.

Safety Measures

The FHA also checks both inside and outside hazards. Drainage and irrigation must pose no potential safety risks. 

Meeting these standards ensures that the process of a joint FHA loan goes smoothly. The goal is to end up with a safe, comfortable home that’s also a worthy investment.

Joint FHA Loan Application and Underwriting Process

Starting the joint FHA loan application process involves understanding shared responsibility and the steps in the joint application. At RenoFi, we are committed to guiding you through each step to ensure you have all the know-how and documents needed.

• Getting Started: The first step in applying for a joint FHA loan requires documentation items from all parties, including income verification, two years of tax returns, bank statements, and ID.
• Finding a Lender: The next step is finding a joint FHA loan lender. They’ll guide you through the application process, explain your options, and ensure everything’s ready for a smooth journey into homeownership.
• Making the Application: Once you have chosen a lender, you must complete an application. Be honest and thorough with your answers, asking for clarification if something is unclear.
• Underwriting and Approval: After you apply, the team of underwriters will review your application, and assess your financials, credit report, and information about your property to determine whether you qualify for the loan.
• Closing the Deal: If all goes well and your application is approved, it will be time to close the deal. You can sign the relevant documents, pay any remaining fees or down payments, and make it official.

Joint FHA Loan Application Essentials

When applying for a joint FHA loan, it’s essential to get all the necessary documents and information in advance to ease the process. Here is what you need to gather:

• Income Verification: Be ready to support your income using recent pay stubs, a W-2 form, and possibly the most recent tax return.
• Credit History: The joint FHA loan applicants should provide their credit reports. Be ready to undergo credit checks to confirm accuracy and identify potential problems. In most cases, minimum scores are linked to FHA loans, so it’s important to know these upfront.
• Assets and Liabilities: List all assets and liabilities, including respective bank accounts, investment accounts, and debts.
• Verification: Have copies of government-issued IDs.
• Property Information: If a property has been identified, gather information regarding the address, purchase price, agreement, or contracts, if any, regarding the sale of such property.

FHA Loan Limits

In the case of joint FHA loans, mortgage limits differ according to the size of the house and the area’s cost of living. The maximum amount you can borrow depends on housing prices in your area and the number of units in the property.

The Department of Housing and Urban Development (HUD) adjusts these limits yearly to reflect current market conditions. A good loan officer knowledgeable about renovation loans is also a critical asset for managing these details.

FHA Mortgage Insurance

You must know something about mortgage insurance when applying for joint FHA loans. This is generally a savior to lenders and has two parts:

• The Upfront Premium for Mortgage Insurance: This is a single, one-off payment to be made at closing, usually 1.75 percent of your loan amount. The silver lining is that this fee can be added to your loan amount.
• Paid Monthly, an Annual MIP: It ranges between 0.45 percent and 1.05 percent of your total loan amount over a year. The payments can last for the term of the loan and LTV ratio.

For example, a 30-year loan term and less than 10 percent for a down payment could have you on the hook for MIP for the total duration of your loan. But if you put more down, you could pay premiums for fewer years. As always, it’s a good idea to check back with your lender.

These requirements are attributed to both borrowers. If you are entering into a joint FHA loan with a partner, you will have to collectively pay the fees for the premiums.

Types of FHA Loans

A joint loan with FHA makes it easy to get into a home with dozens of plans available. Imagine all with fixed rates, adjustable rates, or even sprucer-uppers on your new digs. 

Here’s the breakdown:

• FHA Section 203(b): Best for purchasing one to four-unit dwellings. Fixed rates may be used.
• FHA Section 203(k) loan: This may be the right option for you if you want to make steps toward improvements to your new home, as it helps to finance some improvements.
• FHA Section 245(a) loan: This loan is ideal for someone who expects their pay to increase steadily, with rising payments each year.
• FHA Section 251: An adjustable-rate mortgage with interest that periodically renews after some years.
• FHA Energy Efficient Mortgage (EEM): Allows you to borrow cash to make your home more green.
• FHA Section 255 Home Equity Conversion Mortgage: If you are over 62, turn your home equity into cash with a reverse mortgage.

FHA Loans vs. Conventional Loans

Standard methods of financing a home purchase include joint FHA and conventional loans. The Federal Housing Administration guarantees FHA loans, which are ideal for buying a first home or if you have some problems with your credit. These loans often require a relatively low down payment, even as low as 3.5 percent of the house price. The loans come with additional charges comprising mortgage insurance premiums.

In contrast, conventional loans are appropriate for borrowers with excellent credit ratings and sound financial resources. While down payments are relatively heavy, at 5 to 20 percent, they are not as rigid as those in FHA loans. Borrowers with excellent credit could even qualify for lower interest rates.

Deciding between an FHA and a conventional loan depends on your financial situation and goals. Talk to a mortgage advisor to get the best option for your needs.

Pros and Cons of Joint FHA Loans

Pros

• Low Down Payment: Joint FHA loans can help reduce down payments, making houses affordable.
• Flexible Credit Requirements: The loose credit standards in FHA loans make qualification easy for all classes of people, including those with less-than-perfect credit histories.
• Higher Maximum Allowable Debt-to-Income Ratio: An FHA loan allows borrowers to secure more allowable debt than a conventional loan.

Cons

• Mortgage Insurance: Joint FHA loans include insurance premiums attached to monthly payments.
• Loan Limits: All FHA loans are limited to the maximum mortgage, which could make it a bit challenging to achieve with a more expensive property.
• FHA Property Standards: FHA property standards may, in some cases, exclude the majority of the options.
• Residency requirements: FHA loans are usually meant for a primary residence and not investment properties.

Conclusion 

Joint FHA loans are one of the most flexible and accessible ways to buy a home, especially for those people who would hardly qualify independently for a conventional loan. If you plan to have an FHA joint loan, consider the eligibility and qualification issues beforehand, the details of the loan limit, and how the application flows. Ensure you get all the necessary documents and work hand in hand with your lender.

If you’re considering a home renovation, RenoFi loans are the smartest way to finance your project. Unlike traditional loans, which are based on your current home value or require you to refinance your primary mortgage and give up your low rate, RenoFi loans are based on the After Renovation Value of your home. This allows you to borrow on average 11x more, get a low monthly payment and keep your low rate on your first mortgage.