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FHA Home Loan Resources

FHA Home Loan Topics

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Who Is Eligible For A FHA Loan?

FHA homebuyerThe standard 203B FHA loan includes a low down payment, lower credit score requirement & less cash at closiome buyers; FHA, VA, and USDA. The interest rate tends to be lower than other mortgages. FHA loan requires monthly mortgage insurance, regardless of down payment. And It never goes away. Also required is a funding fee that is paid in cash at settlement or financed with the loan. The lending limit is lower than a conventional mortgage in most US counties.

There are three types of government mortgage loans that are available to prospective home buyers; FHA, VA, and USDA. The federal government does not "make" or originate mortgage loans, but provides default insurance to lenders who offer government backed mortgages. Lenders are more willing to extend mortgages to home buyers with lower down payments and low credit scores because of the default insurance. The goal of the government backed insurance program is to promote home ownership for home buyers who require a low down payment or cannot meet the lending requirements of traditional mortgage programs. The FHA loan gives eligible low to moderate-income borrowers a chance at home ownership. No first-time home buyer requirement.

FHA Loan Qualifications & Eligibility

  • Area Requirement - None
  • Co-signer and Co-borrower - Yes, permitted
  • Credit Score Requirement - Usually 620 - lower with some lenders
  • Gift Funds - Down payment and closing costs to 100%
  • Income limits - None
  • Loan Limits - Yes
  • Minimum Down Payment - 3.5% with scores 580 and higher
  • Monthly Mortgage Insurance (MIP) - Yes, varies
  • Mortgage Programs - 30 and 15-year fixed-rate and adjustable
  • Occupancy Types - Owner occupied only
  • Seller Paid Closing Costs (seller assist) - Up to 6% of sales price
  • Upfront Mortgage Insurance - 1.75% of the loan amount

Area requirement

No area restrictions

Co-signer and co-borrower

The FHA home loan program permits cosigners and co-borrowers. Co-borrowers and cosigners can improve the applicant's debt to income ratio and enable the borrower(s) to purchase a more expensive home.

Credit score requirement

The minimum credit score allowed by the FHA is 500. However, a credit score of 500 to 579 requires a 10% down payment. At 580 or higher, the minimum down payment is 3.5%.

Gift money for down payment and closing costs

Gift money is permitted by the FHA. The gifted funds can cover the down payment and closing costs.

A gift can be provided by:

  • the borrower’s family member;
  • the borrower’s employer or labor union; 
  • a close friend with a clearly defined and documented interest in the Borrower; 
  • a charitable organization; 
  • a governmental agency or public entity that has a program providing homeownership assistance to low or moderate income families or first-time homebuyers.  

The donor of the gift may not be, or have any connection with, the developer, the builder, the real estate agent, or any other interested party to the transaction.

Loan limits

The FHA loan program does have lending limits. The 2021 loan limits are:

  • 1-unit home - $356,362
  • 2-units (duplex) - $456,275
  • 3-units - $551,500
  • 4-units - $685,400

There are exceptions for high-cost counties. See FHA loan limit exceptions.

Income limits

There are no income limits with FHA loans.

Minimum down payment

The FHA down payment is 3.5% for home buyers with a credit score of 580 or greater. Applicants with a credit score of 500 to 579 will need a 10% down payment.

Monthly mortgage insurance (MIP)

Monthly mortgage insurance is required for an FHA loan. The monthly cost varies based on down payment. Unlike the conventional loan program, the FHA does adjust the monthly payment based on credit score.

Mortgage programs

30 and 15-year fixed-rate and adjustable interest rate programs.

FHA offers a standard 1-year ARM and four "hybrid" ARM products. Hybrid ARMs offer an initial interest rate that is constant for the first 3-, 5-, 7-, or 10 years. After the initial period, the interest rate will adjust annually. Below are the different interest rate cap structures for the various ARM products:

1- and 3-year ARMs may increase by one percentage point annually after the initial fixed interest rate period, and five percentage points over the life of the Mortgage.

5-year ARMs may either allow for increases of one percentage point annually, and five percentage points over the life of the Mortgage; or increases of two percentage points annually, and six points over the life of the Mortgage.

7- and 10-year ARMs may only increase by two percentage points annually after the initial fixed interest rate period, and six percentage points over the life of the Mortgage.

Occupancy types

One to four-unit owner occupied principal residences only. No investors

Seller paid closing costs (seller assist)

The home seller is permitted to pay the buyer's closing and prepaid costs up to 6% of the sales price. Learn more about seller assistance

Upfront mortgage insurance

The FHA requires home buyers to pay a fee called the funding fee. The funding fee is used to support the FHA home loan program. The cost is nominal, only 1.75% of the mortgage amount. For example, if you are borrowing $100,000, multiply $100,000 X 1.75% = $1,750.The funding fee can be paid in cash at settlement or financed. If financed, the loan would be $101,750.

Rotating question markFrequently Asked Questions About FHA Loans

Q. Are FHA loans easy to get?
A. The FHA home loan was created to help home buyers who may not qualify for a conventional/conforming loan. The reason FHA loans are less difficult is due to the federal backing.

Q. FHA or conventional loan which is better?
A. The conventional home loans usually have a higher lending limit than the typical FHA mortgage, and the conventional loan can shed the private mortgage insurance (PMI) if the loan amount falls to either 78% or 80%. See Get rid of PMI. The lending guidelines are a bit more stringent with conventional loans. The FHA mortgage program requires monthly mortgage insurance for the life of the loan or until the FHA loan is refinanced.

Q. How can I get an FHA loan with bad credit?
A. The FHA loan guidelines do allow applicants with a 500 credit score, however, the minimum down payment is increased to 10%. Lenders have the final say if they want to extend a loan to home buyers with a depressed credit score and history. The best option is to delay the purchase and work toward rebuilding your credit profile. See Repair my credit report

Q. How can I get rid of the PMI on my FHA loan?
A. Removing PMI (actually mortgage insurance premium) depends on the date the FHA loan was taken out. Read more FHA funding fee MIP explanation

Q. How can I qualify for an FHA loan?
A. Please review the FHA loan qualifications

Q. How hard is it to get an FHA loan?
A. The FHA loan is the easiest mortgage to obtain. The FHA loan has relaxed credit requirements. Cosigners are allowed and the home seller is permitted to pay up to 6% of the sales price toward the buyer's closing costs. See seller assistance

Q. How much are closing costs on an FHA loan?
A. The closing costs are similar to other home mortgages, however, the FHA does require a funding fee. The funding fee is not technically a closing cost, but it is an expense that home buyers incur. The funding fee can be paid in full at settlement or financed with the loan.

Q. How much is the FHA loan limit?
A. The FHA loan limit can be found at: https://entp.hud.gov/idapp/html/hicostlook.cfm