FHA Loan

Last Updated: 03/24/2024

Loan Highlights

  • Homebuyers with limited savings for a down payment or lower credit scores.
  • Credit score as low as 500 with a minimum down payment of 10%, or a credit score of 580 with a minimum down payment of 3.5%.
  • Government-backed loan program with lenient credit and down payment requirements.
  • Suitable for first-time homebuyers and those with past credit challenges.
  • Ranges from $100,000 to FHA loan limits in the borrower's area.

Interest Rate Estimate

Federal Fund Rate + 0.75% Margin
*The mortgage interest rate calculation above is estimated. The subject borrower for that interest rate is as follow:
  • 720 FICO score or higher
  • 30 years fixed interest rate
  • primary residence
  • single family house

Terms and Breakdown:

  • Interest rates: Typically fixed or can be ARM.
  • Loan terms: Typically 15 or 30 years amortized.
  • Down payments: As low as 3.5% of the purchase price.
  • Upfront mortgage insurance premium (MIP) required (one-time 1.75% of the loan amount).
  • Annual MIP payments is around 0.15 – 0.75% of the loan amount per year. Stay for the whole loan schedule if down payment is less than 10%

Requirements:

  • FICO: 500+ (depending on down payment.)
  • DTI: 47/57
  • History: No Bk or foreclosure
  • Employment History: 2 years for W2 employees and self-employed (the amount of year can sometimes very if you’re in school or self-employed).
  • Property must meet FHA appraisal guidelines.
  • Documentation:
    • Typical Documents: Typically full documentation (full docs) including pay stubs, tax returns, W-2 forms, bank statements, and proof of assets. Alternative documentation (alt-docs) may be accepted in certain cases.

Derivative or Related Products:

  • FHA 203(b) Loan: Standard FHA purchase loan for primary residences.
  • FHA 203(k) Loan: Allows buyers to finance both the purchase price and renovation costs in one loan.
  • FHA Streamline Refinance: Allows borrowers to refinance their existing FHA loan with minimal documentation and underwriting requirements.
  • FHA Reverse Mortgage (HECM): Available to seniors aged 62 and older to convert home equity into cash without having to sell or move.

Funder and Sponsors:

  • Federal Housing Administration (FHA) insures FHA loans, which are originated and funded by approved lenders such as banks, credit unions, and mortgage companies.

Notes:

  • Common misunderstandings with FHA loans include:
    • Underestimating total costs: While FHA loans offer low down payment options, borrowers should be aware of upfront and annual mortgage insurance premiums, which can add to the overall cost of the loan.
    • Ignoring property requirements: FHA loans require properties to meet specific appraisal guidelines, including health and safety standards, which may impact the property's eligibility.
    • Overlooking credit requirements: While FHA loans are known for accepting lower credit scores, borrowers should strive for the best credit possible to secure more favorable terms and rates.
    • Documentation requirements: Borrowers should prepare to provide extensive documentation of income, assets, and employment history to meet FHA loan requirements.