FHA Mortgage Primer: What you need to know

An FHA mortgage is a home loan insured by the Federal Housing Administration (FHA), designed to help borrowers with lower credit scores or smaller down payments qualify for a mortgage. Here are the key details:

FHA Loan Basics

• Lower Credit Score Requirements: Typically, borrowers can qualify with a credit score as low as 500 (with a 10% down payment) or 580 (with a 3.5% down payment).

• Low Down Payment: You can put down as little as 3.5% of the home’s purchase price.

• More Lenient Debt-to-Income (DTI) Ratios: FHA loans allow for a higher DTI ratio compared to conventional loans.

• Government-Backed: The FHA insures the loan, but it’s issued by an FHA-approved lender.

FHA Loan Types

• FHA Purchase Loan: Standard home purchase loan with a low down payment.

• FHA 203(k) Loan: Includes funds for home renovations and repairs.

• FHA Streamline Refinance: A simplified refinance option for existing FHA loan holders.

• FHA Cash-Out Refinance: Allows homeowners to refinance and take out cash from their home equity.

Mortgage Insurance Requirements

FHA loans require mortgage insurance premiums (MIP) to protect lenders in case of default:

• Upfront MIP (UFMIP): 1.75% of the loan amount, paid at closing or rolled into the loan.

• Annual MIP: Ranges from 0.45% to 1.05% of the loan amount, depending on loan term and down payment.

• Lifetime MIP: If you put down less than 10%, MIP remains for the life of the loan. If you put 10% or more down, MIP lasts 11 years.

4. FHA Loan Limits

• Loan limits vary by location and are adjusted annually.

• For 2024, FHA loan limits range from $498,257 (low-cost areas) to $1,149,825 (high-cost areas).

Who Can Qualify?

• Must be purchasing a primary residence (no investment properties).

• Need stable employment and income.

• Must meet FHA property standards (the home must be in livable condition).