What is a FHA Loan?
An FHA loan is a mortgage loan that is backed by the Federal Housing Administration. The FHA loan program was established to make home ownership accessible for more Americans.
FHA mortgage loans are a great option for first time home buyers, and can have some advantages when compared to a conventional mortgage. If you are considering an FHA loan, we are here to answer your questions and help you review you potential mortgage options.
In this article we answer some of the most common questions about FHA loans:
What are FHA loan requirements?
The requirements to qualify for an FHA mortgage loan are based on your credit history, income, down payment savings, and debit to income ratio. These are the minimum requirements are set by the FHA to pre approve you for the loan.
FHA Loan Requirements:
- Minimum Down Payment: 3.5% of the home purchase price
- Minimum Credit Score: 620 FICO (580 in favorable market conditions)
- Maximum Debt to Income Ratio: 50%
- (If Applicable) Years Since Bankruptcy: 2
- (If Applicable) Years Since Foreclosure: 3
- (If Applicable) Years Since Short Sale: 3
Remember that the appraisal and terms of the purchase agreement must also be met to close the loan. Learn more about the mortgage process and common mistakes to avoid that delay or prevent closing, in one of our previous articles.
What are the advantages of an FHA loan?
The loan program established by the Federal Housing Administration helps to make home ownership accessible to more Americans. The primary advantages of an FHA loan is being a mortgage program that is a little easier to qualify for than a conventional mortgage. An FHA mortgage can also have a lower cost than some comparable conventional mortgage programs for first time home buyers.
These are the advantages of an FHA loan:
- low down payment at 3.5%
- higher debt to income ratio limitation
- lower credit score minimum in favorable market conditions
- sometimes a lower interest rate than a comparable conventional mortgage
- sometimes a lower cost mortgage insurance option than a comparable conventional mortgage
What are the disadvantages of an FHA loan?
When compared to a similar low down payment conventional mortgage program, there are some trade-offs to consider. While an FHA loan can have some disadvantages, it can still be a good loan option.
These are the disadvantages of an FHA loan:
- Lower maximum home purchase price limit than conventional loans
- More rigid property standards, assessed during the appraisal
- Mortgage insurance required for the full mortgage term with a down payment of less than 10%
Do FHA loans have PMI?
FHA loans do require mortgage insurance on loans with a down payment that is less than 20%. However, it is not private mortgage insurance or PMI. The mortgage insurance cost associated with an FHA loan is call MIP or a mortgage insurance premium. The good news is that the monthly cost of MIP on an FHA loan is often less than the monthly cost of PMI on a conventional mortgage.
There are some differences between the way MIP is applied to your FHA loan depending on your down payment amount. If you pay less than 10% down, the MIP will be applied to your loan for the entire term of the loan. If your down payment is 10% or more on an FHA loan, the MIP cost will drop off of the loan after the first 11 years of payments.
Is it harder to buy a home with an FHA loan?
An FHA loan is a qualified mortgage and in many ways the process of buying a home is the same as it would be with a conventional mortgage. It can be more difficult to purchase a property that is distressed or in need of repairs, due to the higher safety and quality standards required by the Federal Housing Administration during the appraisal of the property.
Is an FHA loan right for me?
Choosing whether a conventional or FHA mortgage loan is right for you comes down to the numbers. Every mortgage is as unique as the homes and people involved in the purchase transaction. The best way to know what mortgage program suits you best is to talk to a licensed mortgage professional about your best mortgage options in the current market.
We take a customized approach to every customer, and we can give you a look at what mortgage programs you qualify for. With a licensed Aspire Lending mortgage consultant you can compare the monthly payments and overall cost of each of your mortgage options.
How do I get pre approved for an FHA loan?
Getting pre approved for an FHA loan starts here on our website. You can submit an inquiry and one of our licensed mortgage consultants will reach out to you.
Through secure communication with a licensed mortgage consultant, you will discuss your goals and financial outlook. After the initial conversation you can submit an online pre approval application. Your application and supporting documentation will be reviewed by an underwriter for the discussed pre approval amount. This process usually takes 24 to 48 hours for a full pre approval.
An FHA mortgage loan can be a great way to buy a home. We are here to answer your mortgage questions and provide insight to your best mortgage options in the current market. Reach out to our team when you are ready to learn more.