Jamie was a loans deputy editor for Forbes Advisor. She's passionate about finance, technology, and the Oxford comma. She enjoys helping people understand complicated financial topics so that they can become confident and take control of their financ.
Jamie Young ContributorJamie was a loans deputy editor for Forbes Advisor. She's passionate about finance, technology, and the Oxford comma. She enjoys helping people understand complicated financial topics so that they can become confident and take control of their financ.
Written By Jamie Young ContributorJamie was a loans deputy editor for Forbes Advisor. She's passionate about finance, technology, and the Oxford comma. She enjoys helping people understand complicated financial topics so that they can become confident and take control of their financ.
Jamie Young ContributorJamie was a loans deputy editor for Forbes Advisor. She's passionate about finance, technology, and the Oxford comma. She enjoys helping people understand complicated financial topics so that they can become confident and take control of their financ.
Contributor Chris Jennings Loans & Mortgages EditorChris Jennings is a writer and editor with more than seven years of experience in the personal finance and mortgage space. He enjoys simplifying complex mortgage topics for first-time homebuyers and homeowners alike. His work has been featured in a n.
Chris Jennings Loans & Mortgages EditorChris Jennings is a writer and editor with more than seven years of experience in the personal finance and mortgage space. He enjoys simplifying complex mortgage topics for first-time homebuyers and homeowners alike. His work has been featured in a n.
Chris Jennings Loans & Mortgages EditorChris Jennings is a writer and editor with more than seven years of experience in the personal finance and mortgage space. He enjoys simplifying complex mortgage topics for first-time homebuyers and homeowners alike. His work has been featured in a n.
Chris Jennings Loans & Mortgages EditorChris Jennings is a writer and editor with more than seven years of experience in the personal finance and mortgage space. He enjoys simplifying complex mortgage topics for first-time homebuyers and homeowners alike. His work has been featured in a n.
| Loans & Mortgages Editor
Updated: Sep 28, 2023, 3:14pm
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The Federal Housing Administration (FHA) was created in 1934 in response to the Great Depression and is part of the Department of Housing and Urban Development (HUD).
Its goal was to make it easier for Americans to afford homeownership by lowering their down payment requirements and offering attractive interest rates. Today, it offers more than a dozen different types of mortgage loans that do just that.
An FHA loan is a mortgage program issued by private mortgage lenders and insured by the Federal Housing Administration. The federal agency insures home purchase loans and mortgage refinances for many single-family and multi-family property types.
Since these loans are government-insured, they have flexible credit and down payment requirements that can benefit first-time homebuyers or applicants with imperfect credit but a steady employment history.
For instance, applicants with a credit score of 580 or higher only need to put as little as 3.5% down when taking out an FHA loan. Participating FHA lenders also accept applications from homebuyers with a credit score between 500 and 579 who can afford a 10% down payment.
FHA loans are mortgages designed to help low- and moderate-income borrowers qualify for home financing. You can qualify for an FHA loan with a lower credit score than a conventional mortgage; FHA loans also have smaller down payment requirements than most other mortgage options.
One important feature to know about this loan program is that it requires an upfront and annual mortgage insurance premiums (MIP). These are a percentage of the loan amount. The recurring annual charge typically lasts for the life of the loan unless you refinance or make a minimum 10% down payment. If you put down at least 10%, the FHA MIP automatically cancels after the first 11 years.
Most FHA loans are offered as fixed-rate mortgages with terms up to 30 years, although lenders issue FHA adjustable-rate mortgages too.
The FHA mortgage limits depend on the dwelling size and regional cost of living. These limits adjust annually as living costs and housing costs change.
Below is the typical maximum loan limit by property size for 2023:
The loan limits vary by county or metro area. HUD lists the local limits for each state and territory.
The FHA permits borrowers to finance such large portions of their home purchases because these loans require borrowers to pay mortgage insurance for certain lengths of time, which vary based on the loan amount to the appraised value of the home, called the loan-to-value (LTV) ratio.
There are two mortgage insurance programs the FHA requires borrowers to pay into:
The amount of time that annual premiums must be paid vary by loan term and LTV:
For example, if someone purchased a home for $300,000 using a 30-year FHA mortgage that required only a 3.5% down payment, their loan amount would be $289,500 ($300,000 x 96.5% LTV). Their upfront mortgage insurance premium would equal $5,066.25 ($289,500 x 1.75%) and their annual mortgage insurance premium would be between $1,158 and $3,039.75, depending on the specifics of the loan.
This mortgage insurance requirement also means that, while you may qualify for a lower interest rate through the FHA than you would for a conventional loan, the total cost of your loan may actually be higher over time.
When it comes to qualifying for an FHA loan, these are the requirements you’ll need to meet:
Once you’ve identified a home you want to purchase and are ready to formally apply for your mortgage loan, you’ll need to choose an FHA-approved lender and work through its individual application and underwriting process. The application process will include completion of a Uniform Residential Loan Application.
As part of your application, you’ll also need to get an appraisal for the home you’re buying, so your lender can ensure your loan won’t violate FHA’s LTV limits. From there, you’ll need to work through your individual lender’s underwriting process, which will include showing proof of income, running credit checks and demonstrating that you can afford your down payment.
Some of the documentation you’ll likely need to supply for underwriting include:
After you complete your lender’s application process and underwriting, your lender can formally approve your loan and you can close on your home.
FHA loans don’t have stated income maximums or minimums, but are generally designed to benefit low- to moderate-income Americans who would have trouble qualifying for conventional financing or affording the down payment required by other loans. If you would like estimate how much you might pay for an FHA home loan, use our free FHA loan calculator today to determine if an FHA home loan is the best fit for you.
Some potential cases when FHA loans can be particularly helpful include:
There are more than a dozen home loan programs available through the FHA. Many of these programs are ideal for different borrowers in a variety of circumstances, offering everything from 30-year fixed-rate mortgages to adjustable rates, improvement loans, refinancing solutions and even reverse mortgages.
Some of the most popular FHA loan programs are:
Most conventional mortgages require down payments of at least 20% of a home’s purchase price in order to avoid paying private mortgage insurance, along with minimum credit scores of 620 to 640 in order to qualify. With private mortgage insurance (PMI) that helps homeowners pay their mortgage if they lose their jobs, some lenders require lower down payments.
FHA loans have two types of built-in mortgage insurance that allow borrowers to buy homes with as little as 3.5% down—or 10% if they have bad credit. In addition, these loans allow homebuyers to qualify for lower interest rates than they would get with conventional mortgages, all because their loans are federally insured.
USDA and the FHA loans are government-backed mortgages run by two different government agencies. The requirements for these loans are different, although both are designed to help first-time homebuyers gain access to homeownership.
FHA borrowers can buy a house anywhere to qualify. But USDA loans are restricted to rural areas, which the USDA defines as having a population of fewer than 35,000 residents.
There are many mortgage options through the FHA for borrowers who might not have enough cash for a down payment or have a low credit score. As you’re shopping around for a mortgage, consider using an FHA loan for your next home purchase.
Find the best Mortgage Refinance Lenders for your needs.
Yes, you can refinance an FHA loan, but you’ll have to qualify for a new loan just as you would for any mortgage. You can refinance into a conventional mortgage, which would get rid of mortgage insurance; or you could consider an FHA streamline refinance, which doesn’t get rid of mortgage insurance.
For all FHA loans, mortgage insurance is required. However, you can cancel it after 11 years if you offer more than 10% as a down payment. This way, you’re not forced to pay FHA mortgage insurance for the entire length of your loan term. Another way to get rid of mortgage insurance is through refinancing. After a few years of paying on your FHA mortgage, your credit could be in better shape than it was when you originally took the loan out—plus, you probably built up some equity in your home. At this point, you could consider refinancing into a conventional mortgage. Even though you will probably have to pay closing costs on a refinanced mortgage, it could be worth it to qualify for a lower interest rate and a mortgage that doesn’t require PMI.
Borrowers can only have one FHA loan at a time. However, you can have many FHA loans over the course of your lifetime.
According to a Consumer Financial Protection Bureau report, approximately 14.1% of FHA applications for home purchases were denied in 2020 (not including incomplete or withdrawn applications). This is higher, compared to the denial rate of 9.3% for home purchase loans in 2020 overall. But that doesn’t mean you won’t qualify for the FHA loan you need. Just make sure you meet the requirements and review your credit report before applying.
Yes, you can get an FHA loan for mobile homes. Generally, these are 20-year, fixed-rate mortgages. However, the loan can go up to 25 years for multi-section mobile homes and lots. For just the lot, without the mobile home, FHA loan terms are fixed with a maximum of 15 years.
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ContributorJamie was a loans deputy editor for Forbes Advisor. She's passionate about finance, technology, and the Oxford comma. She enjoys helping people understand complicated financial topics so that they can become confident and take control of their finances. In her free time, Jamie’s an avid board game geek who watches way too many true crime documentaries.
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