A FHA Mortgage (Federal Housing Authority) is part of US Department of Housing and Urban Development (HUD). FHA does not originate nor service loans instead, they insured and guaranteed by the Government.
FHA Mortgages typically are loans first time home buyers would prefer but you do not have to be a first time home buyer to get a FHA loan.
Key Characteristics of FHA Mortgage Loans Includes:
- Down Payment: minimum down payment is 3.5% of purchase price. A larger down payment can be used if needed. For credit scores below 580 a larger down payment may be required.
- Credit Requirements: FHA Loans have a more flexible credit history and credit score criteria. Interest rates are impacted by credit score.
- Income to Debt Ratios: FHA Loans have a more flexible guideline when it comes to how much home you can afford compared to conventional.
- Private Mortgage Insurance (PMI): Regardless of down payment amount, you will have PMI on a FHA loan. If the down payment amount is 10% or more of the purchase price, the PMI will automatically drop after 11 years. The PMI Rate is the same regardless of credit score but it will be lower if you put 10% down, unlike a conventional mortgage.
- Loan Limits: FHA Loans have a maximum loan limit. The loan limit is determined by FHA each year. The loan limits are determined per county per each state. FHA Loan limits are lower than Conventional Loan limits.
- Loan Terms: FHA Loans typically have the following terms; 30 and 15 year. The 30 year term is the most common.
FHA Loans offer flexibility in credit history, credit scores, income to debt ratios, job history, gifts for down payments, making them a popular choice for homebuyers looking for more flexible options. Borrowers should carefully compare their options, including interest rates, loan terms, and costs before choosing a FHA mortgage or exploring other financial alternatives.
