The Federal Housing Administration (FHA) has been helping people become homeowners for many years.  FHA loans are perfect for those buyers who want a lower down payment and more flexible credit qualification.  There are no income restrictions and the program can be used by first-time or repeat homebuyers. 

These loans may be for 15 or 30 years.  You can buy a home with a down payment as small as 3.5%.  The maximum loan amount is $498,257 as of January 1, 2024.    

 

Benefits of an FHA Mortgage Include:

• Low Down Payment - Borrowers may qualify for a down payment as small as 3.5% of the purchase price, one of the lowest down payment requirements of any mortgage product available.  

•  Easier to Qualify - FHA has more relaxed underwriting guidelines to allow more people to become homeowners.  Your total monthly payments may be as high as 45% of your gross monthly income, depending upon your credit score and other factors.  In addition, the minimum credit score is 620 so borrowers with some credit issues may still qualify.    

•  Interest Rates - Since these mortgages are backed by the Federal Housing Administration, borrowers may receive an interest rate lower than conventional mortgage rates.  The rate won't be adjusted based on the amount of your down payment like the rate on a conventional mortgage.     

•  Assumable - One unique feature of FHA mortgages is that they are assumable.  This means someone may assume your home loan when you sell, if they qualify.  That can be a huge benefit when interest rates rise, as the low rate on your FHA mortgage can be assumed by the new owners of your home.  

•  Co-Applicant and Gift Funds - If you need a little extra help getting a home loan or have family members willing to gift you money, FHA allows for both co-applicants and gift funds.  Co-applicants must qualify for the mortgage and are responsible for payments along with you.  Gift funds can be used for part or all of the down payment on an FHA mortgage.

 

Other Considerations:

•  Mortgage Insurance - All FHA mortgage loans must have mortgage insurance for the life of the loan when the initial loan to value ratio is above 90%.  The ongoing annual fee can range from 0.45% to 0.85% of the current loan balance.  The cost can vary based on several things including the loan to value ratio and the length of the loan.  Although it is payable annually, a portion of the cost is added to each monthly payment. 

•  Funding Fee  - There is an upfront fee of 1.75% of the loan amount for every FHA mortgage.  The fee is paid when the loan is made, but may be added to the loan amount.

• Property Qualification Standards - FHA will not loan on all properties.  It requires that the properties meet Minimum Property Standards (MPS).  These standards include having a roof with at least 2 more years of life, no exposed wood outside or peeling paint, no cracked or broken glass, and a single heat source capable of heating the entire home among other things.