Posted 01/19/2018


FHA loan requirements – What do you actually know about FHA mortgages?

FHA mortgage facts for home buyers

Gina Pogol

The Mortgage Reports Contributor

FHA loan requirements

First-time home buyers and repeat home buyers can use the program to purchase almost any type of residence as long as they meet FHA loan requirements. Those include a minimum credit score of 500 with 10 percent down, and 580 for loans with 3.5 percent down. The property must be your primary home -- no vacation cabins or rentals. However, you cn buy a multi-unit property, like a duplex, as long as you live in one of the units.

Verify your FHA loan program eligibility (Mar 21st, 2018)

FHA loan guidelines versus conventional guidelines

"Conventional" means a mortgage that's not backed by the government. You can buy a house without putting 20 percent down -- even if your credit's not perfect, and there are both private loans and government-backed options to fit the bill. However, conventional loans tend to have more restrictive guidelines.

Low- to no down payment loans are readily available from U.S. lenders, and borrowers can be approved with even below-average credit scores.

Guide to low and no down payment home loans

The FHA loan is one of the most popular low-down-payment mortgages among borrowers with less-than-perfect credit.

Freddie Mac Home Possible vs Fannie Mae HomeReady

The Federal Housing Administration backs the program and makes it available via nearly every mortgage lender in the country. If you want to use FHA financing, you apply with a mortgage lender, broker or bank, just like you would for any other loan type.

For years, the FHA has advertised its products as loans for consumers "on the margins" of homeownership; those with less-than-perfect credit scores, with elevated debt-to-income ratios, or with a lack of credit history.

This doesn't mean that the FHA program is limited to first-time home buyers, though, or to people who otherwise can't get financed.

The FHA program has evolved since its 1934 inception. Today, FHA loans are among the most flexible and rewarding home loan products available to U.S. buyers.

6 FHA mortgage facts you might not know

Verify your FHA loan program eligibility (Mar 21st, 2018)

Fact 1: The FHA is not a mortgage lender

The FHA is not a mortgage lender. It's a mortgage insurer.

The acronym "FHA" stands for Federal Housing Administration, a government agency within the U.S. Department of Housing and Urban Development.

The FHA doesn't make mortgage loans to home buyers or refinancing households. Rather, the FHA provides mortgage insurance to banks, credit unions and other lenders which make loans meeting FHA insurance standards.

The FHA reimburses lenders for a portion of incurred losses in the event that their FHA-insured loans default, or go to short sale or foreclosure.

Fact 2: FHA loans aren't just for first-time buyers

FHA loans are not for first-time buyers only. First-time and repeat buyers can all finances houses with FHA mortgages. The FHA loan is often marketed as a product for "first-time buyers" because of its low down payment requirements. However, in the last decade, many U.S. homeowners have lost home equity in the housing market downturn.

These repeat buyers may have little money for their down payment -- even after the sale of their former home.

The FHA will insure mortgages for any primary residence. There is no requirement that you must be a first-time buyer to use the FHA loan program.

Fact 3: FHA loans require just 3.5 percent down

FHA loans do not require a 20 percent down payment.

For most buyers, FHA mortgages require a 3.5 percent down payment. This makes the FHA mortgage one of the most lenient mortgage types available nationwide.

There are very few credit restrictions on the FHA loan, and the agency allows your 3.5 percent down payment to comes as a gift from a family member, employer, charitable organization or government homebuyer program.

Other low-down-payment mortgage programs have eligibility requirements. Many are limited to those with low, very low, or moderate income. Or they are available to only certain groups.

First-time buyer's guide: making a down payment

The VA loan, for example, allows 100 percent financing, but you must be an eligible military borrower to use it.

The USDA Rural Development loan also allows 100 percent financing, but the program requires you to buy in a designated rural area and imposes income limits too.


Fact 4: FHA loans allow low credit scores

FHA loans feature some of the most flexible and forgiving credit standards of any available loan type. With an FHA-backed loan, you don't need perfect credit. In fact, the FHA expressly instructs lenders to consider a borrower's complete credit history --  not just isolated instances of bad financial luck or an occasional late payment.

FHA mortgage rates are often lower than those of conventional loans for people in the same "credit bucket." That's because FHA does not add risk-based surcharges for things like lower credit scores, higher loan-to-value ratios, or condos and manufactured homes.

What credit score do you need for a mortgage?

Note that not everyone will qualify for an FHA home loan. Borrowers with a "banged-up" history, though, have a much better chance of getting loan approval via the FHA than other government agencies.

Even if you've been turned down for other types of credit, such as an auto loan, credit card or other home loan program, an FHA-backed loan may open the door to homeownership for you.

Verify your FHA loan program eligibility (Mar 21st, 2018)

Fact 5: FHA loans aren't expensive

FHA loans can be more expensive, or less expensive, than other loan types. The long-term cost of an FHA loan depends on your loan size, your down payment and your location.

The biggest cost of an FHA home loan is usually not its mortgage rate -- FHA mortgage rates are often lower than comparable conventional mortgage rates via Fannie Mae and Freddie Mac. The biggest cost is the FHA mortgage insurance.

FHA mortgage insurance premiums (MIP) are payments made to the FHA to insure your loan against default. MIP is how the FHA collects "dues" to keep its program available to U.S homeowners at no cost to taxpayers.

You pay MIP in two parts. The first part is paid at closing and is known as Upfront MIP. You can pay this out-of-pocket, have a motivated home seller pay it for you, or wrap it into your new loan balance. It's up to you.

The mortgage lender calculates FHA annual mortgage insurance premiums each year, based on your remaining loan balance, and divides that amount by 12 and adds it to your mortgage payment.

Annual MIP can range as high as 1.10 percent for high-cost homes in areas such as Orange County, California; Potomac, Maryland; and, New York City, New York. For most borrowers, though, MIP is between 0.45 percent and 0.85 percent, depending on your loan term (15 or 30 year) and the loan-to-value (putting less than 10 percent down, your MIP is higher).

How to cancel FHA MIP

Keep in mind that unlike conventional mortgages, FHA MIP does not drop off once you have paid your loan to down to 80 or 78 percent. It remains in force as long as you have your mortgage.

Fact 6: You can re-apply for FHA loans if you've been turned down

All FHA loans are not the same. There are many "types" of FHA loans, and mortgage rates vary by lender.

As an agency, the FHA publishes and maintains minimum eligibility requirements all of the loans it offers. However, FHA lenders enforce additional requirements on FHA loans, known as "investor overlays."

A sample of investor overlays includes raising the minimum FHA mortgage score requirement, requiring additional time since a bankruptcy, short sale, or foreclosure, or requiring employment verification for an FHA Streamline Refinance"] transaction.

What is an FHA Streamline refinance?

Because of overlays, when you've been turned down for an FHA mortgage by Lender A, you should always try to apply with Lender B which may approve your FHA loan request. Plus, mortgage rates can be very different from bank-to-bank.

In addition, the FHA offers special refinance loans, home construction loans, and other benefits to its applicants. If you've been turned down for an FHA loan with your lender, consider applying somewhere else.

Your loan may be approved once you re-apply.

What are today's FHA mortgage rates?

The FHA backs home loans in all 50 states, in the District of Columbia, and in many U.S. territories including Puerto Rico, Guam and the U.S. Virgin Islands.

Get today's live mortgage rates now. You don't have to provide your  social security number to get started, and all quotes come with access to your live mortgage credit scores.

Verify your FHA loan program eligibility (Mar 21st, 2018)

Gina Pogol

The Mortgage Reports Contributor

Gina Pogol writes about personal finance, credit, mortgages and real estate. She loves helping consumers understand complex and intimidating topics. She can be reached on Twitter at @GinaPogol.

The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.

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2018 Conforming, FHA, & VA Loan Limits

Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)