What you need to know about FHA Mortgages

Didier Malagies • July 24, 2023
  1. Mortgage Insurance: FHA loans require borrowers to pay an upfront mortgage insurance premium (MIP) at closing and an annual MIP as part of their monthly mortgage payments. The mortgage insurance protects the lender in case the borrower defaults on the loan.
  2. Credit Score Requirements: One of the benefits of FHA loans is that they are more lenient with credit score requirements compared to conventional loans. While specific lenders may have their own credit score requirements, borrowers with credit scores as low as 580 may be eligible for an FHA loan. However, a lower credit score may require a larger down payment.
  3. Down Payment: FHA loans generally require a minimum down payment of 3.5% of the home's purchase price. This down payment requirement is lower than the standard 20% down payment required for many conventional loans.
  4. Loan Limits: FHA loan limits vary by location and are influenced by the median home prices in the area. These limits dictate the maximum amount that the FHA will insure for a mortgage in a particular region.
  5. Property Requirements: FHA loans have specific property standards that the home must meet to be eligible for financing. These requirements aim to ensure that the property is safe and habitable for the borrower.
  6. Debt-to-Income Ratio: Lenders typically look at a borrower's debt-to-income (DTI) ratio to determine eligibility. FHA loans may be more flexible with DTI requirements, allowing a higher ratio compared to some conventional loans.
  7. Primary Residence: FHA loans are intended for primary residences and are not suitable for investment properties or second homes.
  8. Streamline Refinance: FHA offers a streamline refinance option, which allows current FHA borrowers to refinance their existing FHA loan with minimal documentation and underwriting.

It's essential to note that lending guidelines and regulations can change over time, so it's a good idea to consult with a mortgage lender or broker to get the most up-to-date information and determine if an FHA loan is the right option for your specific circumstances.

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