FHA Mortgage Loans

What is an FHA Loan?

FHA loans are backed by the Federal Housing Administration, an agency under the jurisdiction of the Department of Housing and Urban Development. FHA loans are insured by the FHA, which simply means that this organization protects your lender against loss if you default on your loan.

FHA loans are available with low down payment options and lower minimum credit score limits, but you’ll also have to pay mortgage insurance.

FHA Loan Requirements

Down Payment

An FHA loan requires a minimum 3.5% down payment. Down payments can be made with gift assistance for an FHA loan, but they must be well-documented to ensure that the gift is not a loan. Typically, these gifts must be from a family member or fiancé.

FHA Mortgage Insurance

You have to pay a mortgage insurance premium (MIP) for an FHA loan. Mortgage insurance is put into place to insure your FHA lender against losses if you default on your loan.

In most cases, you pay mortgage insurance for the life of an FHA loan (unless you made a down payment of at least 10%, in which case, MIP would be on the loan for 11 years). FHA loan mortgage insurance is assessed in a couple of different ways. First, an upfront mortgage premium (UFMIP) is charged, which normally amounts to 1.75% of your base loan amount.

FHA borrowers also pay an annual mortgage insurance premium, which is based on the term (length) of your mortgage, your loan-to-value (LTV) ratio, your total mortgage amount and the size of your down payment. Annual MIP payments run approximately 0.45% – 1.05% of the base loan amount.

Types of FHA Loans

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