FHA Mortgage Basics

What are FHA Loans?

FHA stands for Federal Housing Administration, the government agency which insures FHA mortgages issued by FHA-approved mortgage lenders. Historically these loans have helped lower income Americans receive home financing. The requirements for FHA mortgages are therefore typically more lenient than those for other loan programs.

FHA Loan Requirements

  • Down Payment: 3.5% or greater.
  • Credit Score: FHA requires 500 or greater, but each lender sets own minimum, typically no lower than 580.
  • Debt-to-Income Ratio (DTI): Typically between 45 – 50%.
  • Loan-to-Value Ratio (LTV): 96.5% or lower.
  • Loan Limit (max allowable loan amount): Up to $625,500 in higher cost areas and as low as $271,050 in lower cost areas.
  • Mutual Mortgage Insurance (MMI) is required depending on loan terms and down payment.
  • FHA approval of property based on a home inspection.

FHA Mortgage Insurance Facts

  • Upfront Mortgage Insurance Premium (UFMIP) of 1.75% the base loan amount.
  • Monthly MIP is currently paid on all FHA loans except those with terms less than or equal to 15 years and down payments greater than or equal to 22%.
  • Monthly MIP is paid on all loans with less than 10% down payment for the life of the loan.
  • Monthly MIP can be canceled on loans with 10% or more down payment after 11 years and 78% LTV.

FHA Loan Types

  • Fixed-Rate Mortgages: Your mortgage rate is fixed for the life of the loan.
  • Adjustable-Rate Mortgages: Your mortgage rate will fluctuate depending on a predetermined index and market shifts.
  • Energy Efficient Mortgage program (EEM): You receive extra funds for energy efficiency home improvement projects at the closing of the loan. The funds for improvement are added to the principal loan balance.
  • Condominium: Required loan type for condominium buyers.
  • 203(k): Allows borrower to purchase and receive funds to renovate home at the same time.

Eligible Properties

  • Manufactured Homes: FHA will insure properties that meet specific guidelines.
  • Attached and detached single family homes.
  • 2-4 unit homes as long as borrower occupies one unit as a primary residence.
  • Attached and detached planned unit developments (PUDs).
  • Condominiums that meet FHA approval.