What Is An FHA Loan?
Federal Housing Administration (FHA) provides mortgage insurance on loans made by FHA-approved lenders. Congress created the FHA program in 1934, during a time when the real estate industry struggled to survive. Millions of workers had lost their jobs, and it was difficult to get a home loan. At the time, most mortgage loans were limited to 50% of the home’s value.
FHA mortgage loans are backed by the federal government, which distinguishes them from other home lending programs. The Federal Housing Administration (FHA) oversees the loan program. FHA does not lend money directly to consumers; only non-government mortgage companies offer FHA mortgages to buy a home or refinance a current mortgage. It’s designed to help homeowners and homebuyers who may not qualify for other loan programs obtain the necessary financing.
FHA Mortgage Loan Requirements
To qualify for an FHA loan, you have to meet certain requirements. Here are the six basic requirements for the FHA mortgage loan program.
Who Should Consider An FHA Mortgage Loan
Anyone with a less-than-perfect credit score and/or a low down payment should consider an FHA mortgage. It’s a great program with low rates and offers unique flexibilities you can’t find in conventional mortgages. And the FHA streamline refinance is one of the best refinance programs in the industry.
FHA Mortgage Rates
FHA mortgage rates are low. In fact, they are lower than most conventional rates, especially if you have a sub 720 credit score and an elevated LTV. And if you have a low credit score, there is no comparison between FHA mortgage rates and conventional rates. It’s not even close; FHA mortgage rates are much lower.
FHA Mortgages Made Easy
Low FHA Rates: We have low rates and never charge any junk fees.
Appraisal Waiver: We might be able to waive your appraisal if FHA gives us the approval.
Fast Closings: Our FHA loan program can close in as little as two to three weeks.
Get The Right FHA Mortgage
We look to provide the right FHA mortgage based on your short and long-term financial goals. And we’ll deliver the right mortgage in the least amount of time.
FHA Mortgage Loan Benefits
FHA mortgages benefit those with less-than-perfect credit and/or a low down payment who are looking to buy a home or refinance a current mortgage. Here are the four core benefits of an FHA loan.
Zero Down
Do you qualify for a Down Payment Assistance program? Great! You’ll be able to use that with the FHA program, and in some cases, you won’t have to have a down payment.
Easy Qualification
Under the FHA mortgage program, loan applicants find it easier to qualify. That’s because underwriters have more leeway to approve loan applications that might otherwise get turned down.
Streamlined Refinance
One of the best refinance mortgage programs in the industry is the FHA Streamlined refinance. If you qualify, you won’t have to do an appraisal, and it requires only minimal documentation.
Renovation Program
The go-to renovation program for most homeowners is the FHA 203(k) renovation program. Great rates, and flexible guidelines (even for those really big projects).
FHA Mortgage Insurance Premium
FHA loans have mortgage insurance, a requirement you can’t avoid. It’s an insurance policy you pay that will help cover a lender’s loss if you default on your loan. FHA loans actually have two mortgage insurance premiums. Below is a basic overview of the upfront and monthly mortgage insurance premiums.
- Upfront Mortgage Insurance Premium (UFMIP): FHA charges an upfront fee of 1.75% on all FHA home loans. You either pay the fee at closing (along with other closing costs), or it’s built into your interest rate. Building into your interest rate means your rate will be increased to cover the cost of not charging you the mortgage insurance premium upfront.
- Monthly Mortgage Insurance Premium: The FHA loan Mortgage Insurance (MI) fee is added to your monthly mortgage payment.
Important Fact – UFMIP does not count toward your FHA loan limit or against your loan-to-value ratio. This is a great feature that substantially benefits the loan applicant.
Calculating The Cost Of FHA Mortgage Insurance
Here is the formula an underwriter will use to determine your monthly FHA MI cost.
Cost Of FHA Mortgage Insurance For Loan Amounts Below $726,200
| LTV Ratio | Mortgage Insurance | Number of Years Paid |
|---|---|---|
| Up to 90% | 0.50% | 11 years |
| 90% to 95% | 0.50% | Life of the loan |
| Above 95% | 0.55% | Life of the loan |
For a $300,000 loan amount, 30-year fixed term, and an LTV ratio below 90%, your monthly FHA mortgage insurance cost is $133.34 per month (300,000 x 0.0050 = 1,500/12 (for 12 months) = $125.00 per month).
Cost Of FHA Mortgage Insurance For Loan Amounts Above $726,200
| LTV Ratio | Mortgage Insurance | Number of Years Paid |
|---|---|---|
| Up to 90% | 0.70% | 11 years |
| 90% to 95% | 0.70% | Life of the loan |
| Above 95% | 0.75% | Life of the loan |
For an $800,000 loan amount, 30-year fixed term, and an LTV ratio below 90%, your monthly FHA mortgage insurance cost is $133.34 per month (800,000 x 0.0070 = 5,600/12 (for 12 months) = $466.67 per month).
Explore Some Of Our Other Popular Mortgage Programs
Conventional
A conventional mortgage is the most common mortgage program. Fannie Mae and Freddie Mac set the base guidelines.
Second
A second mortgage is a great tool to help people buy a home. It allows homebuyers to avoid mortgage insurance.
FHA Mortgage FAQs
I have a bankruptcy; can I still get an FHA mortgage?
Yes! If you filed a Chapter 13 bankruptcy, there is no waiting period after the bankruptcy has been settled. And if you are currently in the middle of a Chapter 13 bankruptcy, you may still be able to do an FHA mortgage if both the court and lender approve the loan.
If you previously filed for Chapter 7 bankruptcy, you’ll have to wait two years from the discharge date before obtaining an FHA loan in California. Not all mortgage lenders allow this; many have an overlay regarding bankruptcy.
How Long Does It Take To Get Approved?
Sometimes, you can get an underwritten approval within 24 hours of submitting all your documentation. Generally, though, it takes a bit longer, and it depends a lot on the number of files the underwriter has to review.
How Do I Qualify For The Streamlined Program?
The FHA Streamlined refinance program is one of the best mortgage programs in the industry. The first qualification is that you must have an FHA mortgage in good standing.
Is There a Pre-Payment Penalty?
There is no pre-payment penalty with the FHA mortgage program. You can refinance or payoff the mortgage at any time.
Are Gift Funds Allowed To Be Used For A Down Payment?
Yes, you can receive a gift from a relative, friend, or even your employer for your down payment. These funds must be documented, and the donor must sign the gift letter. The letter must clearly state that the funds donated are a gift and do not need to be paid back. This benefit allows you to purchase a home if you don’t have a down payment (or need a larger one).