FHA Loans: Government-Backed Mortgages with 3.5% Down

FHA loans have helped millions achieve homeownership with their flexible qualification requirements and low down payment options. Backed by the Federal Housing Administration, these loans are designed to make homeownership accessible to more Americans, especially first-time buyers and those rebuilding credit.

What Are FHA Loans?

FHA loans are mortgages insured by the Federal Housing Administration, a government agency created in 1934. This insurance protects lenders if borrowers default, allowing them to offer more flexible terms and accept borrowers who might not qualify for conventional loans.

Key Features

Down Payment: Just 3.5% with 580+ credit
Credit Flexibility: Scores from 500-579 with 10% down
Government Backing: FHA insurance protects lenders
Assumable: Buyers can take over your loan
Streamline Refinance: Simplified refinancing available

Benefits of FHA Loans

Low Down Payment

With just 3.5% down, FHA loans make homeownership possible sooner. On a $300,000 home, that's only $10,500 versus $60,000 for 20% down.

Flexible Credit Requirements

FHA accepts credit scores as low as 580 for minimum down payment, and even 500-579 with 10% down - much more flexible than conventional loans.

Gift Funds Allowed

Your entire down payment can come from gift funds from family, employers, or approved down payment assistance programs.

Higher Debt-to-Income Ratios

FHA allows DTI ratios up to 43% standard, and up to 57% with compensating factors, making qualification easier.

Seller Concessions

Sellers can contribute up to 6% of the purchase price toward your closing costs, reducing your out-of-pocket expenses.

FHA Loan Requirements

Credit Score Requirements

580+: Eligible for 3.5% down payment
500-579: Requires 10% down payment
Below 500: Not eligible for FHA financing

Credit History Considerations

Bankruptcy: 2 years from Chapter 7, 1 year from Chapter 13
Foreclosure: 3-year waiting period
Short Sale: 3 years, possibly less with extenuating circumstances
Late Payments: Should be minimal in past 12 months

Down Payment Requirements

Primary Residence: 3.5% minimum (580+ credit)
All Buyers: Same requirement (not just first-time)
Multi-Unit: 3.5% for 2-4 units (owner-occupied)

Income and Employment

Employment History: 2 years preferred
Income Stability: Consistent or increasing
All Income Types: W-2, self-employed, part-time, seasonal
Documentation: Tax returns, pay stubs, bank statements

Property Requirements

Primary Residence: Must occupy within 60 days
Property Types: Single-family, condos, townhomes, 2-4 units
FHA Appraisal: Stricter property condition requirements
Approved Condos: Must be on FHA-approved list

FHA Mortgage Insurance

Two Types of Insurance

Upfront MIP (UFMIP): 1.75% of loan amount
- Can be financed into loan
- Due at closing if not financed
Annual MIP: 0.55-1.05% yearly
- Paid monthly
- Rate depends on loan term and LTV

MIP Duration

Less than 90% LTV: 11 years
More than 90% LTV: Entire loan term
Cannot be cancelled: Unlike conventional PMI

MIP Costs Example

On a $300,000 loan:

Upfront: $5,250 (usually financed)
Annual: $1,650-$3,150/year ($137-$262/month)

FHA Loan Limits

2024 Limits by Area

Low-Cost Areas: $498,257
High-Cost Areas: Up to $1,149,825
Standard Areas: $766,550

Multi-Unit Properties

Duplex: Higher limits
Triplex: Even higher
Fourplex: Maximum limits

Check your county's specific limits on the HUD website.

The FHA Loan Process

1. Pre-Qualification

Review finances
Estimate buying power
Understand FHA benefits
Plan next steps

2. Find FHA-Approved Lender

Not all lenders offer FHA
Compare rates and fees
Check lender reviews
Understand overlays

3. Get prequalified

Submit application
Provide documentation
Credit check
Receive prequalification letter

4. House Hunting

Stay within budget
Consider FHA appraisal requirements
Work with knowledgeable agent
Make competitive offers

5. FHA Appraisal

More detailed than conventional
Checks health and safety
May require repairs
Valid for 120 days

6. Underwriting

Verify all information
Clear conditions
Final approval
Clear to close

7. Closing

Sign loan documents
Pay closing costs
Receive keys
Move in!

FHA vs. Conventional Loans

When FHA is Better

Credit score under 680
Limited down payment savings
Higher debt-to-income ratio
Recent credit events
Need gift funds for down payment

When Conventional is Better

20% down payment available
Credit score above 740
Want to avoid permanent MIP
Buying investment property
Need higher loan amounts

Special FHA Programs

FHA 203(k) Rehabilitation Loan

Purchase and renovation in one loan
Fix up a fixer-upper
Finance repairs into mortgage
Great for older homes

FHA Energy Efficient Mortgage

Finance energy improvements
Increase buying power
Lower utility costs
Help the environment

FHA Streamline Refinance

No appraisal required
Limited documentation
Lower rates quickly
Must have FHA loan already

FHA Appraisal Requirements

Health and Safety Focus

Working utilities
No peeling paint (pre-1978 homes)
Functional heating/cooling
Safe electrical systems
Structurally sound

Common Issues

Missing handrails
Broken windows
Roof problems
Water damage
Pest infestations

Dealing with Repairs

Seller makes repairs
Negotiate credits
Use 203(k) loan
Find another property

Tips for FHA Success

Strengthen Your Application

Save extra for reserves
Pay down debt
Avoid new credit
Document everything

Work with FHA Experts

Choose experienced lender
Find knowledgeable agent
Understand the process
Ask questions

Prepare for Costs

3.5% down payment
Closing costs (2-5%)
Prepaid items
Moving expenses
Emergency fund

FHA Loan Costs

Upfront Costs

Down payment (3.5%)
Closing costs (2-5%)
Prepaid taxes/insurance
FHA appraisal fee
Home inspection

Monthly Costs

Principal & interest
FHA mortgage insurance
Property taxes
Homeowners insurance
HOA fees (if applicable)

Is FHA Right for You?

FHA loans are excellent for:

First-time homebuyers
Those with limited savings
Borrowers with past credit issues
Anyone needing flexible qualification

Next Steps:

Check Your FHA Eligibility - Quick pre-qualification
Calculate FHA Payments - Include MIP
View Current Rates - See today's FHA rates
Talk to FHA Expert - Get your questions answered

FHA Loan FAQs

Q: Do I have to be a first-time buyer for FHA? A: No, FHA loans are available to all qualified buyers, not just first-time purchasers.

Q: Can I remove FHA mortgage insurance? A: Unlike conventional loans, FHA MIP cannot be cancelled if you put down less than 10%. You'd need to refinance to remove it.

Q: What's the minimum credit score for FHA? A: 580 for 3.5% down, or 500-579 with 10% down. Many lenders have higher minimums.

Q: Can I use FHA for investment property? A: No, FHA loans are only for primary residences. You must occupy the property.

Q: How long does FHA approval take? A: Typically 30-45 days from application to closing, similar to conventional loans.

Ready to explore FHA loan options? Our FHA specialists will guide you through the entire process. Start your FHA application or contact us for expert assistance.