FHA Loans

FHA loans are mortgages insured by the Federal Housing Administration, a government agency within the U.S. Department of Housing and Urban Development (HUD). Created in 1934, the FHA loan program was designed to help more Americans achieve homeownership by providing mortgage insurance to approved lenders.

When you get an FHA loan, the FHA doesn't lend you the money directly. Instead, they insure your loan, which protects your lender if you default. This insurance allows lenders to offer more favorable terms, including lower down payments and more flexible credit requirements.

FHA loans have helped millions of Americans purchase homes who might not otherwise qualify for conventional financing. They remain one of the most popular loan options, especially for first-time homebuyers.

FHA loans work by requiring mortgage insurance that protects lenders against losses. Borrowers pay an upfront mortgage insurance premium (UFMIP) of 1.75% of the loan amount, which can be rolled into the loan. Additionally, borrowers pay an annual mortgage insurance premium (MIP) that's divided into monthly payments.

The down payment requirement is just 3.5% if your credit score is 580 or higher. If your credit score is between 500-579, you'll need to put down 10%. This makes FHA loans accessible to buyers who haven't saved a traditional 20% down payment.

FHA loans have loan limits that vary by county. In most areas, the 2024 limit for a single-family home is $472,030, but can go higher in expensive markets. Your loan officer can tell you the specific limits for your area.

Credit Score: While the minimum credit score is 500, most lenders prefer 580 or higher. With a 620+ credit score, you'll have access to better rates and more lender options.

Down Payment: Just 3.5% down with a 580+ credit score, or 10% down with a 500-579 credit score. Gift funds from family members are allowed for your down payment.

Debt-to-Income Ratio: FHA allows up to 43% DTI, though some lenders may go higher with compensating factors. This is more flexible than conventional loans.

Property Standards: The home must be your primary residence and meet FHA minimum property standards. An FHA appraisal will verify the property is safe, sound, and secure.

Employment: You'll need to show at least two years of steady employment, though gaps may be acceptable with proper documentation.

Down Payment: FHA requires just 3.5% down vs. conventional loans that typically require 5-20%.

Credit Requirements: FHA accepts credit scores as low as 580 (or 500 with 10% down), while conventional loans typically require 620 minimum.

Mortgage Insurance: FHA requires both upfront and ongoing MIP for the life of the loan if you put down less than 10%. Conventional PMI can be removed once you reach 20% equity.

Loan Limits: FHA has lower loan limits than conventional loans. If you need to borrow more than the FHA limit in your area, you'll need a conventional or jumbo loan.

Property Types: Both allow single-family homes and approved condos, but FHA has stricter property condition requirements.