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When we talk, we can discuss further details about FHA loan:

• Different types of FHA loans, like fixed-rate, adjustable-rate, energy-efficient etc.
• Interest rates in your case.
• FHA loan eligibility.
• Loan limits and closing costs.

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What follows is a complete guide about FHA home loans, benefits, eligibility, requirements, turn times. Last Updated – Jan 2024

Estimated read time 8-10 minutes.

Learn Everything You Need To Know About FHA Home Loan Program

Quick scroll links:

• What Are FHA Home Loans?
• Different Types Of FHA Loans?
• Why Are FHA Loans So Popular?
• FHA Loan Requirements
• Eligibility For FHA Loans
• FHA Mortgage Insurance Premium (MIP)
• Common Documents Needed Early In The Process
• Interest Rates On FHA Home Loan
• Can I Get FHA Home Loan With Bad Credit
• Other Loan Programs At A Glance
• Comparison FHA Home Loan vs Conventional Mortgage
• Comparison FHA Loan vs USDA Home Loan
• Today’s FHA Loan Rates

What Are FHA Home Loans?

The Federal Housing Administration (FHA) is a US government agency founded by President Franklin D Roosevelt, created in part by the National Housing Act of 1934. The FHA sets standards for construction and underwriting and insures loans made by FHA-approved lenders throughout the United States and its territories. FHA is the largest mortgage insurer in the world with an active insurance portfolio of over $1.3 trillion.

FHA loan is a government-backed loan program from the Federal Housing Administration (FHA) which became a part of the Department of Housing and Urban Development’s (HUD) Office of Housing in 1965. In this program the lenders are protected by FHA insurance, leveraging them the option to disburse loans at rates which are lower than average when compared to other loan programs.^[1]

FHA loans are more popular amongst first time homebuyers as it helps them in more than one ways. Like you can qualify for FHA mortgage even if you have less money to spare for down payment and/or lower-income and/or lower credit score. You do not necessarily have to be first-time home buyer, anyone can apply for FHA financing. One condition which applies to all is that you have to move in the financed house within 60-90 days of purchase.

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Different Types Of FHA Loans?

Here are some of the popular FHA loan types which cover a wide variety of use cases. To learn more about the finer details talk to one of our loan officers who are expert in FHA.

• FHA Purchase Loans:
  • Standard Purchase Loan: The most common FHA loan, it’s designed for individuals seeking to buy a home, allowing them to secure financing with a lower down payment.
  • 203(b) Loan: This is the standard FHA home loan for one- to four-unit properties, providing flexibility for various housing types.
• FHA Refinance Loans:
  • FHA Streamline Refinance: Streamlines the refinancing process with reduced documentation requirements and faster processing.
  • FHA Cash-out Refinance: Enables borrowers to refinance their existing mortgage while accessing additional cash for various purposes.
• FHA Reverse Mortgage (HECM): Tailored for seniors aged 62 and older, it allows them to convert home equity into cash without selling their homes, supporting retirees with additional income.
• FHA Graduated Payment Mortgage (GPM): Offers lower initial monthly payments that gradually increase, allowing borrowers to manage their mortgage payments as their income grows.
• FHA Energy Efficient Mortgage (EEM): Provides additional financing to borrowers implementing energy-efficient improvements in their homes, promoting sustainability. The FHA’s Energy Efficient Mortgage program (EEM) has dual benefit of having homeowners make energy efficient upgrades to their homes and also benefit the environment through reduced emissions. In this case as your utility bills are lowered you can afford higher mortgage premium. EEM program can be used in both cases whether you are purchasing or refinancing your home.
• 203(K) Program: FHA 203(K) loan program allows borrowers to finance additional upto 35K towards the repairs or upgrades to their home. By rolling the costs of renovations into the mortgage, you can easily have an upgraded kitchen, patio, deck, bathrooms, flooring and more! By performing these upgrades, you actually add instant equity to the home. Not every buyer has time or willingness to take this long route, but if you do then you buy a house with lesser competition and go via FHA 203K route to fix-it-up. On the other hand turn-key houses face more competition, so you end up leaving that money on the table.

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Why Are FHA Loans So Popular?

Well the truth is that FHA loans were not that popular about 15 years back. Somewhat due to competition and other factors like higher mortgage insurance, lower limits and strict appraisal guidelines. Over this short span FHA market has grown from sub 5% levels to more than 25% and reason favoring these loans are:

• Lower down payment of only 3.5% where-as you need 20% for conventional loan.
• Qualifying credit score is 620, but can go down to 580 in some cases. I am whispering, some lenders may even take up 500 with 10% down payment in exceptional cases.
• Rolling in the cost of renovation into the loan, by the way of fha 203(k) loans. This adds instant equity to your home.
• Lowered income limits of only 30K.
• Low interest rates compared to conventional mortgage.
• Real Estate prices have dropped, making way for a lot of properties fall in the qualifying bucket for FHA loan.
• Unlike USDA home loans where property cannot be an income producing, FHA loans can be taken on premise which is income producing.

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What are the Requirements for FHA Loan?

To quality for an FHA loan you must meet the following requirements:

• Credit score 580 or higher with 3.5% down payment, ideally more than 640 to qualify with great rates. If your credit score is less than 580 then you will be required to put in 10% down and you may qualify with anything in between 500-580. If your credit score is less than 500, then talk to our loan officer’s for proper guidance to cross these barriers.
• The property in consideration has to be your primary residence and you should plan to move in 60-90 days of purchase.
• Documents supporting steady flow of income.
• As of July 2020 the debt-to-income-ratio for FHA loans is set at < 50% which is a lot more compared to conventional loans where is goes to a maximum of 43%. With this much margin there are better chances for you to qualify for FHA program if you have a lot of current debt.
• Bankruptcy Options with FHA Program. FHA loans are generally not available to borrowers whose homes were foreclosed within the last 3 years. There of course are exceptions, if you have not taken any further debt and improved your credit considerably then this 3 year term may be relaxed for your case. For chapter 7 bankruptcy at least 2 years must have elapsed since the discharge date of the bankruptcy and you should be in at least for an year for chapter 13 bankruptcy .

As you can see the requirements are pretty lenient for an FHA loan.

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Am I Eligibility For An FHA Loan Program?

Sure, click the “apply now” link below, fill up the form and one of our expert loan officer will get back to you and check your eligibility. If you are in Eastern Day Time Zone call us and talk to our FHA loan expert right now!

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What is FHA Mortgage Insurance Premium (MIP)?

Is this a catch with FHA programs – Not really! Without mortgage insurance premium (MIP), FHA loan will not be possible in the first place.

On the one hand MIP allows FHA approved lenders to offer lower rates. Secondly, it safeguards the interest of lenders, that if someone defaults on their mortgage payments this FHA insurance will pay off the lenders. So it is kind of win-win situation for both parties,. How to take best advantage or in other words offset this extra burden to you as a borrower depends upon your current financial situation.

There are two components to FHA-MIP one-time upfront and monthly along with your mortgage payments. As of July 2020 mortgage insurance premium rates are as follows:

• Upfront Premium – 1.75% of the loan amount, paid at the time of closing your loan.
• Monthly Premium – 0.85% calculated annually based off of your loan amount and paid monthly along with your loan installment.

The reason that these MIPs have dropped over recent years makes FHA loans attractive pick for home buyers. Although this insurance premium continues for the entire duration of your loan tenure, but if you act smartly and can afford 10% or more down payment this premium drops off after 11th year of your loan term [This apply’s to most loan terms and almost all FHA programs].

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Common Documents Needed Early In The Process

When you move forward with your loan application, there will be some paperwork that you will need to gather and submit before your loan can close.  Here at the Heights, we think that the more prepared that you are, the more smooth the loan process will be.  If you want to get ahead of the curve, you can start working on gathering these primary documents:

• A copy of your state issued identification card
• A copy of your social security card
• Your last two paystubs
• Your last two bank statements

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What are the Interest Rates on FHA Home Loan?

FHA Loan Program	Interest Rate	APR
30 Year Purchase	3.150%	3.690%
30 Year Refinance	3.060%	3.690%
30 Year Purchase Fixed	3.330%	3.560%
30 Year Refinance Fixed	3.360%	3.520%
15 Year Purchase Fixed	2.840%	3.120%
15 Year Refinance Fixed	2.870%	3.050%

Your actual rate can differ based on the lender, your credit score and other qualification criteria. Looking at current market conditions, locking yourself in a fixed rate at this time or refinancing your current mortgage will result in considerable savings over a period of time.

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Can I Get FHA Home Loan With Bad Credit?

FHA loans can be a good option for borrowers with low credit score. You need minimum 500 and put 10% down to qualify for an FHA program. This 10% down payment can be taken from friends or family as gift. To avail FHA loan with 3.5% down you need to have minimum score of 580.Further to get better bargain on rates you need to be over 620. To summarize, you can get FHA loan with bad credit.

If your credit score is less than 500 then you need to improve your credit score by making your bill payments on time. We are here to help you, talk to one of our loan officers who can put you on correct path to improve your credit score in a timely manner.

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Other Loan Programs At A Glance

Here are some other loan programs that offer low down payment and flexible conditions that you may qualify.

• Conventional 97 loan requires just 3% down 
• Fannie Mae HomeReady loan again 3% down 
• Freddie Mac Home Possible loan 3% down
• VA loans – 0 down payment loan
• USDA loans – USDA is a no money down home loan program

There are restrictions and/or strict conditions involved with these. Like VA requires you to be a veteran, USDA has income limits and requires the property to be in an eligible area, Conventional require higher credit score and so on.

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Comparison FHA Home Loan vs Conventional Mortgage

Here are some key comparison points between FHA and Conventional Loans.

Comparison Basis	FHA	Conventional
Down Payment	3.5%	3.0%
Loan Limits	$331,760	$510,400
Debt-To-Income-Ratio	50.0%	43.0%
Property Location	Anywhere	Anywhere
Credit Score	580	620
Income Limits	No	No

If your credit score is between 500 – 620 then FHA is your only option as some FHA lenders will allow credit-scores below 580 as well with a 10% down.

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Comparison FHA Loan vs USDA Home Loan

Here are some key comparison points between USDA and FHA loans.

Comparison Basis	FHA	USDA
Down Payment	3.5%	0 Down
Upfront MIP	1.75%	1.00%
Annual MIP	0.85%	0.35%
Property Location	Anywhere	Rural Area
Credit Score	580	640
Income Limits	No	Yes

USDA might look like a run away winner, but there is a tighter window to be eligible due to restrictions like property has to be in an eligible area, income limits, loan limits etc.

For comparison between all popular loan programs refer this document

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Current FHA Home Loan Rates

As mortgage rates at all time low levels of sub 4%, FHA is even cheaper. Talk to our FHA loan expert to find out your eligibility and have a word about today’s rates!

To present our readers with the most accurate information we do refer whitepapers, government websites and other reputed publishers to gain deep insight on the subject matter. Reference materials used are as under:

1. FHA – THE FEDERAL HOUSING ADMINISTRATION (FHA) – Last Accessed July 12th, 2020

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