FHA loan programs help lower-income families purchase a home affordably and without getting in over their heads. They provide easier guidelines and lower costs, making it easier to purchase a home. If that home happens to lie in the outskirts, meaning not with any city or suburb boundaries, however, it is generally unacceptable for any program, including the standard FHA loan. This is where the FHA Outlying Area Program Section 203(i) helps. This program provides funding to purchase homes in outlying areas for qualifying applicants.
What Properties Qualify?
The FHA Outlying Area Program is only available for properties in outlying areas. This usually means areas that are not built up and where resale would be near impossible if you were to default on the loan. As you can guess, no other programs, especially conventional loans would allow for financing in these areas. The areas are typically rural or farm communities. The homes can be any of the following:
- Homes under construction
- Farmhouse properties that reside on at least 2 acres and have public roads
- Proposed homes
What are the Down Payment Requirements?
A standard FHA loan requires at least a 3.5% down payment. The FHA Outlying Program works a little differently. The down payment varies based on the value of the home.
- The first $25,000 of the home requires you to put down at least 3% of the price of the home
- The first $125,000 of the home requires you to put down at least 5% of the price of the home
- Any values over $125,000 need a 10% down payment
In addition, the maximum mortgage amount cannot ever exceed 98.75% of the value of the home if the home is worth less than $50,000 and 97.75% for homes worth more than $50,000.
Maximum Loan Amounts
Because the FHA created this program for low to middle-income families that wish to purchase a home in outlying areas, there are maximum loan amounts that do not meet standard FHA guidelines. The maximum amount changes periodically based on the new FHA guidelines. Right now, borrowers are able to receive up to 75% of the maximum FHA loan values in standard areas.
Mortgage Insurance Requirements
Just like any other FHA loan, there are mortgage insurance requirements for the Outlying Area Program. You will pay upfront and annual mortgage insurance. In most cases, however, the lender can wrap the upfront mortgage insurance into your loan making the program more affordable for you. The mortgage servicer will add the annual mortgage insurance to your mortgage payment in 12 equal increments to help make paying for the insurance easier.
Who Qualifies for the FHA Outlying Area Program?
The qualifying guidelines for the FHA Outlying Area Program Section 203(i) program are very similar to the standard FHA program. As long as you can meet the standard credit requirements and have the cash to put down on the home, you have a good chance of qualifying. The FHA does not have strict standards pertaining to what credit qualifies. According to the FHA, credit scores as low as 580 are acceptable, however, every lender differs. Because this loan program is much less common, lenders are more likely to require scores over the 620 range in order to qualify.
Aside from your credit score, you basically need a clean 12-month payment history (everything paid on time), enough cash to put down on the home and to pay any closing costs that you will not wrap into the loan, and a good debt-to-income ratio. The final requirement which you cannot work around is that the property must be owner occupied – the FHA does not offer investment loans.
If you wish to purchase a home in an “outlying” area, you can apply for the FHA Outlying Area Program Section 203(i) with any FHA approved lender. Not every lender wishes to utilize this program, however, so you might have to shop around a bit to find a willing participant. Because the program offers low fees and lucrative financing terms, it can be a great way to purchase the home you desire that is off the beaten path.