What is FHA Home Loans?
Federal Housing Administration or FHA provides mortgage insurance on loans made by FHA-approved lenders. FHA insures these loans on single family and multi-family homes in the United States and its territories. It is the largest insurer of residential mortgages in the world, insuring tens of millions of properties since 1934 when it was created. Designed for low-to-moderate income borrowers, FHA loans require a lower minimum down payments and credit scores than many conventional loans.
* 203K Full and 203K Streamline
* 203H Disaster Loan
* 0 Score Financing Available
FHA Home Loans are a good option for first-time homebuyers who may not have saved enough for a large down payment. Even borrowers who have suffered from bankruptcy or foreclosures may qualify for an FHA-backed mortgage.
FHA loans are a home buying program backed by the Federal Housing Administration.
This agency — which is an arm of the Department of Housing and Urban Development (HUD) — uses its FHA mortgage program to make homeownership more accessible to disadvantaged home buyers.
FHA does this by lowering the upfront barrier to home buying.
Reduced down payments and lower credit score requirements make homeownership more accessible to buyers who might not otherwise qualify for a mortgage.
Although FHA loans are backed by the federal government, they’re originated (‘made’) by private lenders. Most major lenders are FHA-approved, so it’s relatively easy to shop around and find your best deal on an FHA mortgage.
If you have a sub-par credit score, low savings, or high levels of debt, an FHA mortgage could help you get into a new home sooner rather than later.
FHA sets loan limits for each county, which dictate the maximum amount borrowers can qualify for via the FHA program. Loan limits are higher in areas with high-cost real estate, and borrowers purchasing 2-4-unit properties can often get a larger loan amount than those buying single-family homes. Not all borrowers will qualify for the maximum loan size, though. The amount you can qualify for with FHA depends on your down payment, income, debts, and credit.
Home buyers must put at least 3.5% down on an FHA loan. That’s because FHA’s maximum loan-to-value ratio is 96.5% — meaning your loan amount can’t be more than 96.5% of the home’s value. By making a 3.5% down payment, you push your loan amount below FHA’s LTV threshold.
Unlike conventional mortgages, FHA loans do not waive mortgage insurance when you put 20% down. All FHA homeowners are required to pay mortgage insurance regardless of down payment — though if you put at least 10% down, you’ll only pay it for 11 years instead of the life of the loan. If you have 20% down and a credit score above 620, you’re likely better off with a conventional loan because you won’t have to pay for PMI.
Yes, you have to pay closing costs on an FHA mortgage just like any other loan type. FHA loan closing costs are close to conventional closing costs: about 2-5% of the loan amount depending on your home price and lender. FHA also charges an upfront mortgage insurance fee equal to 1.75% of the loan amount. Most borrowers roll this into the loan to avoid paying it upfront. But if you choose to pay upfront, this fee will increase your closing costs substantially.
A typical FHA loan payment includes principal and interest on the loan balance, mortgage insurance premiums, monthly homeowners insurance fees, and monthly property taxes. FHA homeowners in a condo or PUD will also have to pay homeowners association (HOA) dues every month.
That depends. FHA loans require mortgage insurance, which will increase your monthly mortgage payments. But so do conventional loans with less than 20% down. The cheaper loan for you will depend on your down payment and credit score; if you have great credit and 5% down or more, a conventional loan will likely have lower monthly payments. But if you have low credit and 3-3.5% down, the PMI on a conventional loan could be more expensive than FHA MIP. Talk to a lender to compare payment amounts and find out which loan is best for you.
Typically, the only closing cost that can be included in an FHA loan is the upfront mortgage insurance premium (upfront MIP). Most other closing costs will need to be paid out of pocket when purchasing a home or using the FHA Streamline Refinance program.
FHA mortgage rates are often lower than rates for conventional mortgages. However, a lower interest rate does not always equate to a lower monthly payment. FHA mortgage insurance will increase your payments and the overall cost of the loan, even if the base rate is lower than for other loan types. Looking at annual percentage rate (APR) can be helpful in determining the ‘true’ cost of a loan, since APR accounts for fees as well as interest.
No. FHA loan rates are not set by the government, and they are not consistent from one FHA loan to the next. FHA-approved lenders get to set their own mortgage rates, and some may have more affordable pricing than others. In addition, rates can vary by borrower, with the lowest rates often going to the ‘safest’ borrowers, and higher rates going to borrowers with lower credit and other risky loan characteristics.
Many home buyers qualify for FHA — they just don’t know it yet. Check with a lender to verify your eligibility and find out how much house you can afford via the FHA mortgage program. You can get started below.