An FHA loan is a mortgage insured by the Federal Housing Administration (FHA), a U.S. government agency within HUD. By backing loans, the FHA reduces lender risk and expands homeownership opportunities for buyers who may struggle with credit or savings.
Established in 1934 to revive the housing market, the FHA’s mission is to:
FHA loans require just 3.5% down for borrowers with credit scores above 580, compared to 20% often required for conventional mortgages.
Applicants with credit scores between 500 and 579 may still qualify with a 10% down payment, making FHA loans accessible to those with past financial challenges.
Ideal candidates include:
• Credit score ≥580 for 3.5% down
• Credit score 500–579 for 10% down
• Debt-to-income ratios typically max out at 43%, though some lenders allow up to 50%.
FHA sets county-specific loan limits based on median home prices. Borrowers must demonstrate steady income and meet local caps.
Properties must pass an FHA appraisal, meeting safety, security and habitability guidelines. Look for “FHA Approved” in listing details or ask your agent.
Borrowers pay a one-time UFMIP of 1.75% of the loan amount at closing or roll it into the mortgage.
An annual fee (0.45%–1.05% of loan balance) divided into monthly payments. Required for the life of the loan if down payment is <10%.
• FHA rates are competitive but vary by lender
• Origination fees (up to 1% of loan)
• Typical closing costs (2%–5%) including title, appraisal, and escrow fees
Pre-qualification gives an estimate based on self-reported data. Pre-approval involves a credit check and documentation, yielding a conditional commitment.
• Underwriting review: 2–4 weeks
• FHA appraisal scheduling and inspection: 1–2 weeks
• Closing: 30–45 days from application
Pros: Lower down payments, flexible credit. Cons: Mandatory mortgage insurance, county loan limits.
• VA loans: No down payment, veterans only, funding fee applies
• USDA loans: No down payment in eligible rural areas, income limits enforced
• 203(k) Rehab: Combine purchase and renovation costs
• Energy Efficient Mortgage (EEM): Finance green upgrades into the loan
3.5% for credit ≥580; 10% for 500–579 scores.
Minimum 500, but 580+ unlocks the lowest down payment.
Yes—up to 4 units if you occupy one as your primary residence.
At least one year as your principal residence; no minimum beyond occupancy requirements.
Yes, once you reach 20% equity or secure sufficient credit improvements, you can refinance to drop mortgage insurance.
Meet the Johnsons: Combined income $65,000; credit scores of 620 and 605; $8,000 savings.
Goals: Buy a 2-bedroom starter home in a suburban neighborhood with room for baby gear and a small home office.
How FHA Helped: With a 3.5% down payment ($7,000) and FHA’s flexible credit rules, they qualified. Their lender added the 1.75% UFMIP into the loan.
Navigating Appraisal, MIP Costs, and Closing: The FHA appraisal flagged minor roofing repairs. The sellers agreed to adjust the sale price by $2,000. Annual MIP of 0.85% added $100/month. Closing costs totaled $4,200, covered partly by seller concessions.
Review credit reports, reduce debts, and save for down payment plus 2–5% closing costs.
Analyze all programs—conventional, VA, USDA—to find the best fit.
Reach out to lenders specializing in FHA mortgages to get a clear path to homeownership.
