What is an FHA Loan?
FHA (Federal Housing Administration) loan is a home mortgage insured by the government and issued by a bank or other lender the agency approves. Federal Housing Administration loans require a down payment lower minimum than many conventional loans, and applicants may have lower credit scores than are usually needed. The FHA loan has designed to help low- to moderate-income families attain homeownership. They are particularly popular with first-time homebuyers.
What is the FHA (Federal Housing Administration)?
The government issues insure a home mortgage by a bank or other lender approved by the Federal Housing Administration (FHA).
To provide American renters with better credit choices for purchasing a home, the FHA has established in 1934. A 50% down payment was typical back then, which meant you had to be able to afford a mortgage in three to five years.
FHA loan requirements
- Credit Score: Qualify for an FHA loan; the minimum credit score requirement is 500 required.
- Debt to Income: The debt to income ratio indicates the percentage of your income before tax you spend on paying a debt, including a mortgage, credit card, or student loan. The outstanding debt-to-income ratio is 50% or less.
- 5% Minimum Down Payment: FHA requirement changes as per an individual’s credit score, but a minimum of 3.5% of a down payment applies to an individual with a credit score higher than 580. For an individual with a credit score of 500 to 579 minimum down payment of 10% is applicable for FHA.
- 75% upfront mortgage insurance premium payment of the base loan amount is required.
- Primary Residence and Property Requirements: the house must be the primary residence of an individual or family and must qualify all property requirements as per law. E.g., Safety, security, and sound condition.
- Individuals must have at least two credit accounts—credit cards.
- It should be clear regarding the legal procedure without a history of fraud or any crime related to taxation or debt.
- The donor must declare a down payment with the help of the third party in writing.
| Requirement | FHA |
| Down payment | 3.5% (580 scores) 10% (500 scores) |
| Credit score | 580 with 3.5% down 500 with 10% down |
| Mortgage insurance or similar fee | UFMIP 1.75% Annual MIP 0.45% to 1.05% |
| DTI ratio (Debit to income ratio) | 43% back-end maximum* |
| Loan limits for single-family homes in low-cost areas | $472,030 |
| Income Limits | No |
FHA loan limits
Each year, the FHA establishes new loan limits based on a loan percentage of the limits set by the FHFA (Federal Housing Finance Agency).
| Number of units | Low-cost area limits | High-cost area limits |
|---|---|---|
| One unit | $420,680 | $970,800 |
| Two units | $538,650 | $1,243,050 |
| Three units | $651,050 | $1,502,475 |
| Four units | $809,150 | $1,867,275 |
FHA loan limits vary by county, and they may be higher in more expensive areas of the country. If you buy a two- to four-unit home, you’ll also have more borrowing power.
| FHA loan limits | Most areas | High-cost areas | Alaska, Hawaii, Guam, and U.S. Virgin Islands |
|---|---|---|---|
| Single unit | $472,030 | $1,089,300 | $1,633,950 |
| Duplexes (two units) | $604,400 | $1,394,775 | $2,092,150 |
| Triplexes (three units) | $730,525 | $1,685,850 | $2,528,775 |
| Four units | $907,900 | $2,095,200 | $3,142,800 |
For single-family home loans this year, the FHA loan limits range from a floor of $472,030 to a ceiling of $1,089,300. More expensive areas have higher loan limits.
FHA interest rates
Here’s how today’s FHA interest rates compare to other types of mortgages.
| Mortgage type | Average rate today |
| 30-year fixed | 6.44% |
| 20-year fixed | 5.85% |
| 15-year fixed | 5.47% |
| 7/1 ARM | 5.86% |
| 5/1 ARM | 5.78% |
| 30-year FHA | 5.83% |
| 30-year VA | 5.45% |
FAQs
Compared to regular mortgages, FHA loans have higher interest rates and mandate mortgage insurance for borrowers. FHA loans have lending limits and need to be more flexible.
A government-backed mortgage loan known as an FHA loan enables you to purchase a home with less stringent financial standards. You might be eligible for an FHA (Federal Housing Administration) loan if you have debt or a low credit score. Even if you have a bankruptcy or other economic issue on your record, you may be eligible for an FHA loan.
FHA (Federal Housing Administration) loan is a home mortgage insured by the government and issued by a bank or other lender that the agency approves. 1 FHA loans require a lower minimum down payment than many conventional loans. Applicants may have lower credit scores than are usually needed.
These are five types of FHA loans:
1. Basic Home Mortgage 203(b)
2. FHA’s Energy Efficient Mortgage.
3. 203(k) Rehab Mortgage.
4. Mortgage Insurance for Disaster Victims Section 203(h)
5. Good Neighbor Next Door.
FHA loans take about the same time to be processed as a conventional or VA loan, approximately 45 days. That includes the entire process, from the loan application to the final approval and closing.