FHA mortgages are loans that meet the underwriting guidelines set by the Federal Housing Administration. You can choose from a variety of loan terms, with either fixed or adjustable rates. There is no maximum income limitation on an FHA loan, however, maximum loan amounts do vary by property location. It's available on 1-4 unit properties and condominiums.
An FHA loan has several benefits that make it a popular choice among those looking to refinance or purchase a home. Because they are insured by the United States government, FHA mortgages offer less demanding qualifying criteria than conventional mortgages, as well as options for those with less-than-perfect credit or no formal credit history. If you are looking to purchase you first home, you can also take advantage of the lower down payment requirements on FHA loans. If you already own a home and wish to refinance, an FHA loan lets you access more of your home's equity than other mortgages (up to 97.75% loan-to-value (LTV)). However, it's important to keep in mind that an FHA loan requires the borrower to pay a monthly mortgage insurance payment (MIP). Unlike conventional loans, the mortgage insurance is required even if the LTV is under 80%*.
Is an FHA loan the right choice for you?
Are you looking to borrow on a primary residence? FHA loans are only available on primary residences and cannot be utilized to finance a co-op.
Would you benefit from less stringent qualification requirements? FHA loans are generally easier to qualify for because they have more flexible guidelines and lower down payment requirements. FHA loans also have a lower credit score requirement than conventional loans.
Do you have limited funds to use for a down payment? FHA loans grant first time home buyers the ability to purchase a home with a down payment of as low as 3.5% of the purchase price. A conventional loan, on the other hand, may have down payment requirements that range from 5% to 20%.
Do you currently have an FHA loan? Ask about refinancing with FHA Streamline. It's fast and easy and you might not even need an appraisal.
* The only exception to this is the 15 year fixed FHA with an LTV under 78%; there is no annual MI required on this loan.