fha loans

An FHA loan is a government-backed mortgage loan that can allow you to buy a home with slightly looser financial requirements. You may qualify for an FHA loan if you have high debt or a lower credit score. You might even be able to get an FHA loan with a bankruptcy or other financial issue on your record. FHA loans are insured by the Federal Housing Administration, an agency under the Department of Housing and Urban Development.

highlights

Down Payment

Your down payment is a percentage of the purchase price of a home and is the amount you put down for that home. The minimum down payment you’re able to make on an FHA loan is directly linked to your credit score.

An FHA loan requires a minimum 3.5% down payment for credit scores of 580 and higher. If you can make a 10% down payment, your credit score can be in the 500 – 579 range. A mortgage calculator can help you estimate your monthly payments, and you can see how your down payment amount affects them.

Note that down payments can be made with gift funds for an FHA loan, but they must be well-documented to ensure that the gift assistance is in fact a gift and not a loan in disguise.

Mortgage Insurance

You’ll pay a mortgage insurance premium (MIP) for all FHA loans. Mortgage insurance is put into place to protect the FHA against losses if you can’t repay 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 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.