FHA Loans

FHA Loans are mortgages guaranteed or insured by the Federal Housing Administration (FHA), a US government agency.

The low down payment required as well as the allowed credit score make this program very attractive to many borrowers. The guidelines are also more lenient with respect to collections, judgments, and bankruptcies.

FHA loans can only be used for a primary residence.



FHA loans require a minimum 580 credit score. Remember, the lower your credit score is, the higher the interest rate will be on the loan. FHA loans allows for non-occupying co-borrowers to be on the loan.

The debt to Income ratio (DTI) on FHA loans is 45% of your gross monthly qualifying income compared to your overall debt load with the new home loan. However, with a higher credit score there are allowances for DTI ratios. In some cases DTI up to 56% can receive underwriting approval.

Mortgage insurance is required on all FHA loans. Up-front MIP (Mortgage Insurance Premium) is 1.75% of the loan amount and is paid at closing. There is also a monthly mortgage insurance fee of .85% of the loan amount. (with a 5% down payment this drops to .80% per month) If your down payment amount is less than 10% there is MI for the life of the loan.

There are many flexible options for down payment funds on an FHA loan. Gift funds can come from family members for the entire down payment and closing costs. Grant and bond programs from the state can also be used toward a down payment.