What is an FHA Loan?
There are several loans insured by the government, and one of the most popular types is a Federal Housing Administration, or FHA, loan. FHA is part of the U.S. Department of Housing and Urban Development or HUD. FHA loans require as little as 3.5% down and credit requirements for FHA loans are lower than for conventional mortgage loans.
Many borrowers are under the impression that FHA loans are only for first time Home Buyers. This is absolutely not the case! Even if you’ve owned numerous homes over the years, FHA financing is absolutely available to you. There are also no income caps on this product, meaning if you are a higher income earner you won’t be disqualified as you would be on a Mass Housing Loan or USDA loan.
Home buyers who use FHA loans pay an Upfront Mortgage Insurance Premium. It’s an ‘upfront’ mortgage insurance premium because you pay it upfront at closing. Because it’s added to your loan balance, you pay interest on it for the life of the loan.
You must also pay an Annual Insurance Premium each month on an FHA loan of 1.75%. For loans $726,200 or less, if your loan to value is 95% or lower, the annual mortgage insurance for a 30-year fixed interest rate loan is now .50% of the base loan amount. If your loan to value is greater than 95%, the annual mortgage insurance premium is .55% of the base loan amount.
For a 15-year fixed rate FHA mortgage, if your loan to value is 90% or under, the annual mortgage insurance premium is 0.15% of the base loan amount; loan to values over 90% will have annual mortgage insurance rates of 0.40%.
FHA also offers a program, called a 203K Streamline Rehab Loan, for homebuyers and homeowners to finance up to $35,000 into their mortgage to repair, improve, or upgrade their home and non-streamline 203k Rehab Loan without limits on financed improvements.
Use our mortgage calculator to figure out what your monthly mortgage payment would be.
What Are the Requirements for an FHA Loan?
You are required to have a minimum credit score of 580 to qualify for FHA’s 3.5% down payment program, unless the loan is above $625,000, which will require a down payment of 10%.
There are debt-to-income requirements for FHA loans. A debt-to-income ratio is a comparison of your pre-tax income to housing and non-housing expenses.
Keep in mind that FHA loans are for the purchase of a primary residence (1-4 family) property only, not for investment property.
FHA Loan Limits
The Department of Housing and Urban Development (HUD) announced that it lowered FHA single-family loan limits on January 1, 2015.
To see what the FHA loan limits are in your area, visit the FHA Mortgage Loan Limits page on the HUD website.
It’s a good idea to shop around to get the lowest mortgage rates for FHA loans.