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FHA Home Loan Benefits & Guidelines


What Is an FHA Home Loan?

An FHA Home Loan is a type of mortgage that is backed by the Federal Housing Administration (FHA). Because the FHA insures the mortgage — meaning they will cover the loan in case of a default — the loan is less risky for lenders. Therefore, lenders can accept lower down payments (as little as 3.5% with minimum 580 credit score) and are more willing to loan money to people with lower credit scores. As with any mortgage loan, you’ll repay the loan through your monthly FHA mortgage payment. However, your monthly payments will include an annual Mortgage Insurance Premium (MIP), unless you pay that MIP upfront.

How Can an FHA Mortgage Loan Be Used?

FHA Home Loans can be used to purchase or refinance a single-family home, condominium or a multi-family property (up to four units). Some loans can also be used for new construction or home renovations, including energy-efficient upgrades. Each of these types of loans have limits. Here are some examples:

  • Basic home mortgages must be on a house that only requires $5,000 or less in repairs.
  • Construction loans can be used to purchase land and build a new home, but the qualification process is more difficult and takes a little longer.

All FHA Home Loans have mortgage limits based on the county in which you live. For example, limits for 2022 ranged from $420,680 for low-cost counties, to $970,800 in the highest-cost counties on one-unit properties. Additionally, a property must meet FHA Home Loan requirements, which include an FHA inspection and appraisal.


Which Is Better: FHA or VA Home Loans?

While FHA Home Loans are certainly available to servicemembers and Veterans, they aren’t necessarily a better option than a VA Home Loan for those buyers. Here are some major differences to help you determine if an FHA mortgage is right for you:

1. Down Payment

With a VA Home Loan, servicemembers and Veterans may not have to pay a down payment. FHA Home Loans, however, require a down payment of at least 3.5%, which is less than some other home loans, but that is still money out of your pocket that could otherwise be used for your home maintenance fund, furniture or home improvements.

2. Mortgage Insurance

VA Home Loans require VA Funding Fees while FHA mortgages include an annual Mortgage Insurance Premium (MIP). A Military Mortgage Advisor can help you determine how these compare and what would be best for you based on your individual situation.

3. Credit Scores

FHA Home Loan requirements state the borrower must have at least a 580 credit score. VA Home Loans don’t have a set minimum. However, for both types of loans, lenders may require borrowers to have a set minimum score to qualify.

4. Home Value

Both VA Home Loans and FHA Home Loans have limits on how much you can borrow. However, VA Home Loans will let you go higher with the set limit if you qualify for a Jumbo loan, but you will have to pay a down payment.

Who Is Eligible for an FHA Home Loan?

FHA Home Loans are often easier to qualify for than other conventional loans due to lower required credit scores and flexibility to use a gift or grant as your down payment. However, there are still some stipulations:

  • You must have money for a down payment. With an FHA Home Loan, the down payment may be as low as 3.5% but could be as much as 10%, depending on your credit score and the lender. However, you can use money gifted to you from a family member toward a down payment, as long as the donor provides a letter stating that no repayment is expected.

  • Your debt-to-income ratio (DTI) must be less than 50%, which means that your monthly debt payments are not more than 50% of your pretax income. If you haven’t calculated your DTI since the new student loan debt calculation was announced in June 2021, get more information here.

Today's Mortgage Rates

Disclaimer: these are sample rates and terms based on daily pricing that fluctuates and is subject to change and credit approval. Parameters: 720+ FICO, Single-Family Residence, $300,000 loan amount, State = NC, County = Wake, Discount Points range from 0.0% to 2.0% as shown above, Admin Fee = $1149. For VA Home Loan, assume a 2.3% VA Funding Fee.