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FHA Mortgage Program

FHA Mortgage Program

  • Key FHA Mortgage Considerations
  • Pros Cons
    • Ability to purchase home with low down payment
    • Typically lower interest rate than conventional mortgage
    • Potentially lower closing costs
    • More lenient mortgage qualification requirements
    • Greater borrower cost than a conventional mortgage due to required up-front and ongoing annual mortgage insurance premiums (MIP)
    • Limits on mortgage amount
  • FHA Mortgage Program Overview
  • The Federal Housing Administration (FHA) offers government-backed mortgage programs that are designed to help individuals with low-to-moderate incomes, challenging credit profiles or limited funds obtain mortgages.  The FHA insures the mortgage which guarantees that the lender will recover the full amount of the mortgage in the event of foreclosure.  The key benefit of the FHA mortgage program is that it only requires the borrower to make a down payment of 3.5% of the home purchase price, as compared to the 10% - 20% down payment typically required by most conventional mortgage programs.  Because of the low down payment requirement, the FHA mortgage program can be an excellent alternative for first-time home buyers.  Other benefits of the FHA mortgage program include a lower interest rate and more flexible mortgage qualification requirements.  The most common FHA mortgage program is available to all qualified borrowers but there are other FHA programs specifically for Native Americans, disaster victims, law enforcement officers, teachers and firefighters.

    Borrowers can combine an FHA loan with a personal gift, employer program, down payment grant, closing cost assistance program or qualified subordinated second mortgage to pay for a down payment, closing costs or property renovations, allowing the borrower to purchase a property with no personal financial contribution. Down payment and closing cost assistance grants as well as qualified subordinated second mortgages are provided through state or local housing agencies or commissions.

    The main downside of an FHA mortgage is that it may cost borrowers more in total monthly housing expense as compared to a conventional loan because it requires the borrower to pay an up-front and ongoing annual FHA Mortgage Insurance Premium (MIP).  FHA MIP is an additional up-front and recurring monthly cost borrowers should consider when evaluating if FHA mortgage is right for them.

  • How the FHA Mortgage Program Program Works
  • Although the FHA determines program guidelines and provides mortgage insurance, borrowers do not interact with the FHA when they apply for an FHA loan. Instead, borrowers apply for the FHA Mortgage Program through approved lenders such as banks, mortgage banks, mortgage brokers and credit unions. These approved lenders make sure that applicants meet FHA Mortgage Program eligibility requirements and qualify for the loan according to the FHA's borrower qualification requirements. Not all lenders offer FHA mortgages but many do. Click on a lender in the table below or INTEREST RATES to contact lenders about the FHA Mortgage Program.

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    Rate Details*
    Loan Program:  
    Monthly Payment:  
    APR:  
    Rate:  
    Points  More Info:
    Points: Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
     
    Total Lender Fees:  
    Loan type:  
    Property Value:  
    Loan to Value:  
    Credit Rating:  
    Date Submitted:  
    Monthly Housing Payments
    P & I More Info
    Principal & Interest: A periodic payment, usually paid monthly, that includes the interest charges for the period plus an amount applied to the reduction of the principal balance.
    Mortgage Insurance More Info
    Mortgage Insurance: The monthly cost for a policy that protects the lender in case you’re unable to repay the full amount of the loan. It is typically required for loans that have a loan-to-value ratio between 80% to 100%.
    (Estimated)
    Property Tax More Info
    Property Tax: (Also called "Real Estate Tax.") Property taxes are government assessments on real estate property. With mortgage financing, the local, county or state tax assessment on real estate property is considered part of the monthly housing obligation and typically collected and set aside by the lender ...
    (Estimated)
    Homeowner Insurance More Info
    Homeowner Insurance: or also commonly called hazard insurance, is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one’s home, its contents, loss of its use, or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory.lender ...
    (Estimated)
    Homeowner Association Fee More Info
    Homeowner Association fee: (HOA) fees are funds that are collected from homeowners in a condominium complex to obtain the income needed to pay (typically) for master insurance, exterior and interior (as appropriate) maintenance, landscaping, water, sewer, and garbage costs.
    (If Any)
    Total Monthly Housing Payments
    Lender Fees
    Points More Info
    Points Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
    Origination Fee More Info
    Origination Charge: A loan origination charge is a fee charged by the lender for evaluating, processing, and closing the loan.
    Credit Report Fee More Info
    Credit Report Fee: Fee charged to obtain an applicant’s credit history prepared by one or all of the three major credit bureaus. Used by lender to determine the borrower’s creditworthiness.
    Tax Service Fee More Info
    Tax Service Fee: A fee charged by the lender to cover the cost of retaining a tax service agency. These agencies monitor the property tax payments on the property and report the results to the lender.
    Processing Fee More Info
    Processing Fee: A processing fee is a charge by the lender for clerical items associated with the loan. Examples of processing include loan set up, organization of loan conditions for underwriting, and preparing required disclosures for the borrower.
    Underwriting Fee More Info
    Underwriting Fee: A fee charged by the lender to verify information on the loan application, authenticate the property’s value, and perform a risk analysis on the overall loan package.
    Wire Transfer Fee More Info
    Wire Transfer Fee: In most cases lenders wire funds to escrow companies to fund a loan. Commercial banks that perform this function will charge the lender so the fee is generally passed on to the borrower.
    (If Any)
    FHA Upfront Premium More Info
    FHA Upfront Premium: A fee paid in cash at the close of escrow or more commonly it is financed into the loan. These premiums are pooled together by the FHA and are used to insure the risk of borrower default on FHA loans. FHA upfront premiums are prorated over a five year period, meaning should the homeowner refinance or sell during the first five years of the loan, they are entitled to a partial refund of the FHA upfront premium paid at loan inception.
    (If any)
    VA funding Fee (If any)
    Flood Fee
    Other Fees More Info

    Other fees could be either additional Administrative Fees that a lender charges or it could be a Flat Fee to cover all lender charges such as: (Origination Fees, Points, Underwriting and Processing Fees, Credit Reports and Tax Service Fees)

    The flat fee does not include prepaid items and third party costs such as appraisal fees, recording fees, prepaid interest, property & transfer taxes, homeowners insurance, borrower’s attorney’s fees, private mortgage insurance premiums (if applicable), survey costs, title insurance and related services.

    Total Lender Fees
    *Actual rates and other information may vary. Sponsored results shown only include participating lenders. The information you enter on this page will only be shared with lenders you choose to contact, either by calling the phone number or requesting a quote.
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    Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. The actual payment obligation will be greater if taxes and insurance are included. Click here for more information on rates and product details.
  • FHA Mortgage Program Borrower Qualification Requirements
  • To qualify for the FHA Mortgage Program borrowers must meet certain eligibility requirements. We review the key borrower qualification requirements below.

    Credit Score

    The FHA mortgage program typically requires that borrowers have a minimum credit score of 580 although there are some cases where borrowers can qualify for an FHA mortgage with a credit score less than 580 and certain FHA programs may require a credit score greater than 580.  The minimum credit score required to qualify for an FHA loan is lower than for most other no or low down payment mortgage programs, which means more credit-challenged borrowers are eligible for the FHA program.  We recommend that you review your credit score six months to a year before you start the mortgage process to address potential issues.

    Borrower Debt-to-Income Ratio

    To qualify for an FHA mortgage a borrower must typically have a maximum debt-to-income ratio of 43%, although it is possible to qualify for an FHA mortgage with a debt-to-income ratio of 50% or higher under certain circumstances . The debt-to-income ratio represents the maximum acceptable percentage of a borrower's monthly gross income that can be spent on total monthly housing expense (MHE) plus payments for other monthly debts such as credit card, auto and student loans.  Total monthly housing expense includes your monthly mortgage payment plus other housing-related expenses such as property tax, homeowners insurance and FHA mortgage insurance premium (MIP) as well as other potentially applicable expenses such as homeowners association (HOA) fees.

    The 43% maximum debt-to-income ratio consistent with the debt-to-income ratio typically used by lenders for conventional mortgage programs but higher than the debt-to-income ratio used for a VA mortgage.  Circumstances under which it is possible to get approved for an FHA mortgage with a higher debt-to-income ratio of 50% or greater include borrowers with excellent credit scores or job histories, borrowers making larger down payments (which is rare with the FHA program) and borrowers with supplemental sources of income that may not be reflected on their mortgage application, such as from a spouse or part-time work.  Please note that being approved for an FHA mortgage with a higher debt-to-income ratio requires extra work by the lender to document the borrower's compensating circumstances and not all lenders offer FHA mortgages with higher debt-to-income ratios because they involve additional risk.   

  • CalculatorUse our FHA MORTGAGE QUALIFICATION CALCULATOR to understand what size FHA mortgage you can afford
  • Debt-to-Income Ratio Example for an FHA Mortgage

    The example below demonstrates what size FHA mortgage a borrower qualifies for based on applying the 43% debt-to-income ratio FHA guideline.  In this example, the borrower earns $60,000 in annual gross income (your income before any deductions) which means the borrower earns $5,000 in monthly gross income.  Applying the 43% debt-to-income ratio to the borrower's monthly gross income means the borrower can spend $2,150 ($5,000 * 43% = $2,150) on total monthly housing expense plus other debt such as credit card, auto and student loan payments.

    The borrower in this example has $275 in other monthly debt which means he or she can spend $1,875 ($2,150 - $275 (other monthly debt) = $1,875) on total monthly housing expense which includes the mortgage payment, property taxes and insurance ($245) and the FHA mortgage insurance premium ($205).  After these housing expenses the borrower can afford a monthly mortgage payment of $1,425 ($1,875 - $450= $1,425).  Based on this monthly mortgage payment and a 30 year fixed rate mortgage with an interest rate of 4.250%, the borrower can afford a mortgage of $289,700.  If interest rates are lower, the borrower could afford a higher mortgage amount and if interest rates are higher, the borrower could afford a lower mortgage amount.  The example also assumes the borrower makes a 3.5% down payment.  If the buyer makes a larger down payment, the ongoing FHA mortgage insurance premium may be lower.

FHA Borrower Qualification Example
  • Annual Gross Income
  • $60,000
  • Monthly Gross Income
  • $5,000 ($60,000 ÷ 12 = $5,000)
  • Max Monthly Housing Expense (MHE) Plus Other Debt Expense Based
    on 43% Debt-to-Income Ratio
  • $2,150 ($5,000 * 43% = $2,150)
  • Other Monthly Debt Payments
  • -$275
  • Estimated Maximum Monthly Housing Expense (Principal, Interest,
    Property Taxes, Property Insurance, Mortgage Insurance Premium)
  • $1,875 ($2,150 - $275 (other monthly debt) = $1,875)
  • Estimated Monthly Property Taxes and Insurance
  • -$245
  • Estimated Ongoing Monthly FHA Mortgage Insurance Premium
  • -$205
  • Estimated Monthly Mortgage Payment
  • $1,425 ($1,875 - $450 (property tax, insurance and FHA MIP) = $1,425)
  • Estimated Mortgage Amount for which the Borrower Qualifies
    (based on a 30 year fixed rate mortgage with an interest rate of 4.250%)
  • $289,700

    Borrower Income Limit

    Unlike many other no or low down payment mortgage programs, the FHA Program does not apply borrower income limits.

    First-Time and Repeat Home Buyers

    The FHA Mortgage Program is available to both first-time and repeat home buyers as compared to other no or low down payment programs that are only available to first-time buyers.

    FHA Borrower Financial Reserves Requirement

    The FHA Mortgage Program does not require borrowers to hold savings in reserve at mortgage closing for purchases of one or two unit properties, although FREEandCLEAR recommends that you hold enough savings in reserve to cover three-to-six months of total monthly housing expense. For purchases of three or four unit properties borrowers are required to hold three months of total monthly housing expense (mortgage payment plus property tax, homeowners insurance and FHA MIP) as savings in reserve at mortgage closing.  So if your total monthly housing expense is $2,000, you would be required to keep at least $6,000 in reserves at the time the mortgage closes.

  • FHA Mortgage Insurance Premium (MIP)
  • The FHA mortgage program requires that borrowers pay an up-front and ongoing annual Mortgage Insurance Premium (MIP).  The MIP protects lenders against losses that result from defaults on FHA mortgages.  The up-front MIP for most FHA mortgages is 1.75% of the loan amount and can be added to the mortgage amount.  The ongoing MIP is similar to private mortgage insurance (PMI) and is an additional monthly cost to the borrower on top of your mortgage payment.  The ongoing monthly MIP fee depends on mortgage amount, loan-to-value (LTV) ratio and mortgage term.

  • CalculatorUse our FHA MORTGAGE QUALIFICATION CALCULATOR to calculate the up-front and ongoing FHA MIP fee for an FHA loan
  • The tables below show FHA MIP rates for home purchase loans as well as the duration of the ongoing MIP.  As the tables indicate, the shorter the mortgage term and lower the LTV ratio, the lower the MIP fee.  The duration (how many years you have to pay) of the ongoing MIP varries by the LTV ratio at the time you obtain the mortgage.

  • Loan term of greater than 15 years
Base Loan Amount LTV Ratio Up-Front MIP Annual Ongoing MIP
Less than or equal to $625,000 Less than or equal to 95.00% 1.75% of loan amount .80% of loan amount
Less than or equal to $625,000 Greater than 95.00% 1.75% of loan amount .85% of loan amount
Greater than $625,000 Less than or equal to 95.00% 1.75% of loan amount 1.0% of loan amount
Greater than $625,000 Greater than 95.00% 1.75% of loan amount 1.05% of loan amount
Loan term of less than or equal to 15 years
Base Loan Amount LTV Ratio Up-Front MIP Annual Ongoing MIP
Any loan amount Less than or equal to 78% 1.75% of loan amount .45% of loan amount
Less than or equal to $625,000 Less than or equal to 90.00% 1.75% of loan amount .45% of loan amount
Less than or equal to $625,000 Greater than 90.00% 1.75% of loan amount .70% of loan amount
Greater than $625,000 Less than or equal to 90.00% and
greater than or equal to 78.00%
1.75% of loan amount .70% of loan amount
Greater than $625,000 Greater than 90.00% 1.75% of loan amount .95% of loan amount
Annual Ongoing MIP duration
LTV Ratio Mortgage Term Duration of Annual Ongoing MIP
Less than or equal to 90.00% Any term 11 years
Greater than 90.00% Any term Mortgage term

    Please note that the up-front and ongoing FHA MIP for multi-family properties (two-four units) designated as broadly affordable, mixed-income or energy-efficient is lower than the standard MIP outlined in the above tables. Both the up-front and ongoing MIP for broadly affordable and energy-efficient multi-family properties is .25% of the loan amount and .35% of the loan amount for mixed-income multi-family properties.  The FHA uses the following definitions for broadly affordable, mixed-income and energy-efficient:

    • Broadly Affordable: properties with at least 90% of the units under Section 8 contract and/or covered by Low Income Housing Tax Credit (LIHTC) affordability requirements
    • Mixed-Income: properties that set-aside units based on affordability including partial LIHTC, partial section 8, inclusionary zoning or other local affordability requirement
    • Energy-Efficient: properties committed to industry-recognized green building standards and committed to energy performance in the top 25% of multi-family buildings nationwide. Qualification for the top 25% is determined using the Environmental Protection Agency's (EPA’s) portfolio manager 1-100 score
  • Program Costs and Fees
  • Mortgage Rate

    The interest rate you pay on an FHA mortgage depends on several factors including your credit score and loan-to-value (LTV) ratio.  Borrowers with a credit score of 720 and above receive the program’s best interest rate while borrowers with lower credit scores and higher LTV ratios pay higher interest rates. For borrowers with good credit scores, the interest rate for an FHA mortgage is typically .125% - .500% lower than the interest rate for other conventional low down payment programs and comparable to the interest rate for government-backed programs such as the VA and USDA mortgage programs.  The interest rate for an FHA loan is lower because the program is backed by the government and borrowers are required to pay FHA MIP.   Borrowers should shop lenders to find the FHA mortgage with the lowest interest rate and fees.

    Extra Fees

    Borrowers are required to pay standard lender fees and closing costs with the FHA Mortgage Program. Aside from the up-front FHA mortgage insurance premium (MIP), borrowers are not required to pay additional fees to apply for the program. Borrowers using a down payment or closing cost assistance program may be required to pay a separate fee to the housing agency or commission to apply for that program.

    Impound Account

    Along with their mortgage payment, the FHA Mortgage Program requires borrowers to pay property tax, homeowners insurance and mortgage insurance premium (MIP) into an impound account on a monthly basis. An impound account is a trust account controlled by the lender from which expenses such as taxes and insurance are paid when due. The impound account does not affect the amount of fees the borrower is required to pay for the mortgage.

  • Mortgage Program and Type
  • Mortgage Program

    Only selected mortgage programs are eligible for the FHA Mortgage Program. 15 and 30 year fixed rate mortgages plus 1 year, 3/1, 5/1, 7/1 and 10/1 adjustable rate mortgages (ARMs) are eligible for the program while interest only mortgages are not eligible.

    Mortgage Type

    The FHA Mortgage Program applies to both home purchase mortgages as well as refinancings. Homeowners with FHA loans can use the FHA Streamline Refinance Program to refinance their mortgage with less documentation and borrower qualification requirements including no income, assets or credit score verification and no appraisal report.  

  • FHA Loan Limits
  • There are limits to the size of mortgage you can obtain through an FHA program.  The loan limits vary by number of units in the property with a single-unit property having the lowest limits.  There is one set of loan limits for the 48 contiguous states, the District of Columbia and Puerto Rico and a higher set of loan limits for Alaska, Hawaii, Guam and the U.S. Virgin Islands.  For the 48 contiguous states, the District of Columbia and Puerto Rico there is a basic standard mortgage limit and a higher limit for high cost areas with higher home prices.

  • CalculatorUse our FHA LOAN LIMIT CALCULATOR to determine the FHA loan limit in your county
  Contiguous States, District of Columbia,
and Puerto Rico
Alaska, Guam, Hawaii, and the U.S. Virgin Islands
Number of Units Basic Standard High Cost General
1 $275,665 $636,150 $954,225
2 $352,950 $814,500 $1,221,750
3 $426,625 $984,525 $1,476,775
4 $530,150 $1,223,475 $1,835,200
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