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What is an FHA loan?

An FHA (Federal Housing Administration) loan is a solution for buyers that might not otherwise qualify for a conventional mortgage.

An FHA loan is a mortgage that allows for a purchase of a primary residence with a low down payment and is insured by the Federal Housing Administration (FHA). FHA loans help families become homeowners by lowering the cost of financing and the down payment barrier to buying. According to Mortgage Reports, approximately 20% of qualified homebuyers apply and get an FHA loan due to its credit and income friendly requirements.

History of
FHA Loans

The Federal Housing Administration (FHA) was created by Congress in 1934 and became a part of the Department of Housing and Urban Development (HUD) in 1965. At the time the FHA was created, the housing industry was slow. Approximately 2 million construction workers were out of jobs, mortgage qualifications were hard to meet for potential home buyers, and only 2 in 5 families actually owned their homes.

FHA loan programs helped change this during the 1940s and helped finance housing for veterans and military returning from service. In the three decades after, the FHA helped production on millions of housing units for lower-income Americans. Since then, FHA loans have been one of the most sought after loan programs for families with a higher debt-to-income ratio and a lower income.

FHA Loan:
What's Needed

  • At least a FICO score of 530 or higher
  • 3.5% down payment
  • No reserves required with an Automated Underwriting approval on one to two properties

What are the benefits
to an FHA loan?

An FHA loan is a great option for a first time home buyer that doesn’t have a great credit score or a lot of money to put down. FHA has shorter waiting periods than conventional loans for borrowers who have had credit events, such as bankruptcy, foreclosure, or a short sale, as long as they have re-established credit. FHA allows a relative(s) to be a non-occupant co-borrower(s) to assist the borrower in qualifying.

FHA Loan Limits

At the beginning of each year, FHA loan limits are updated by HUD. The standard loan limits increased up to $331,760 from $314,827 in 2019. FHA loan limits may fluctuate based on your city, region, or state. Click here to see if limits could be different in your area.

2020

2019

Down Payment Assistance for FHA Loans

FHA’s minimum down payment can be as little as 3.5% on purchases. These mortgages are insured by FHA. This is a great option for first time home buyers or families that don’t have a lot to put down for their home.

Stacks of money

Closing Costs
for FHA Loans

There are fees and charges that you accumulate in the mortgage process with an FHA loan or any loan, and these fees are closing costs. FHA closing costs are approximately 3-4% of the home’s purchase price, which can vary by state due to higher taxes. Some Down Payment Assistance programs can cover a portion of the closing costs associated with your FHA loan.

Mortgage Insurance and FHA Loans

All FHA loans require mortgage insurance. The first premium charged is an upfront one-time payment mortgage insurance premium that is financed into the loan amount and usually totals around 1.75% of the loan. The second is an annual mortgage insurance premium (MIP), which is paid monthly, and there are a few factors that determine the rate including the loan-to-value ratio. The MIP is divided into 12 installments and are part of your monthly mortgage payments. Check out our Loan Calculator below for the monthly breakdown of your mortgage with an FHA loan.

FHA Loans for First Time Home Buyers

FHA loans can be a great solution for First Time Home Buyers with lower credit scores and down payment options as low as 3.5%. Talk to your local On Q Home Loans Mortgage Consultant to get started.

FHA Loans for Realtors

On Q Home Loans works with your clients to find the best loan programs to match their needs and ensure that we’ll close on time.

FHA Loans Available

Streamline Refinance Loan

FHA Streamline Refinance Loans cut down on the amount of documentation required from the borrower and the underwriting that needs to be performed because it doesn’t require employment or income verification. Some of the basic requirements include:

  • The mortgage to be refinanced must already be FHA-insured
  • The mortgage should be current
  • The refinance is to lower the borrower’s interest and payments
  • No cash may be taken out on mortgages refinanced using the streamline refinance process
  • No appraisals
  • Due to COVID circumstances, credit qualifying streamline refinances is required

FHA 203(k) Loan

The FHA 203(k) Loan is a type of loan that includes the renovation and mortgage loan. This loan can be used for updating or adding rooms or for older homes that need significant repairs. Some requirements include:

  • 3.5% down payment
  • 640 minimum credit score to qualify
  • 2 years of tax returns
  • Verification of income
  • No late payments in the past 12 months

Loan Calculator

Use our free mortgage payment calculator to see your potential monthly mortgage payments

Buying a home is a big investment. It’s important to understand everything involved and see how much you can afford.

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