FHA Loans Frequently Asked Questions
What is an FHA loan?
FHA loans are home mortgage loans obtained through traditional mortgage lenders that are insured by the Federal Housing Administration (FHA), an office of Housing and Urban Development (HUD).
FHA loans are used by experienced and first-time homebuyers alike. Because FHA requires only a 3.5% down payment, FHA loans are popular with a wide array of future homeowners.
Can anyone get an FHA loan?
Obtaining an FHA loan is similar to obtaining a traditional mortgage loan. However, FHA guidelines are typically more favorable than a conventional mortgage loan.
What are FHA's interest rates?
FHA interest rates are determined by the lender issuing the FHA loan. Rates fluctuate daily and can even change throughout the day depending on market conditions.
Because lenders' rates vary, obtaining quotes from multiple FHA lenders is often a good idea. Typically, you don't secure ("lock" in the lending world) your interest rate until you have a purchase contract on your soon to be new home.
What are FHA loan limits?
FHA limits the amount you can borrow using an FHA loan. Limitations are established yearly and are generally the same for a majority of homes throughout the U.S. However, areas where home prices are higher have accordingly adjusted loan limits.
FHA loan limits are broken down by county, and it is important to know your county's limit prior to home shopping if you are planning to use an FHA loan.
Do I qualify for an FHA loan?
To qualify for an FHA loan, you must apply with an FHA approved lender and meet their underwriting guidelines (lender speak for "qualifications"). FHA itself does not actually make loans. However, they establish parameters that lenders must follow for the lender to receive the backing of FHA.
Understanding FHA qualifying criteria can be complicated, which is why it is important to prequalify with an FHA lender prior to home shopping. Prequalifying will also improve your relationship with real estate agents, who are more likely to work with buyers who have financing in place.
More info: FHA Single Family Handbook
What is FHA mortgage insurance?
FHA loans contain two forms of mortgage insurance premiums. The first is an upfront fee that is added to your loan amount at closing. The second is an annual fee that you pay monthly as part of your mortgage payment.
Upfront Mortgage Insurance Premium (UFMIP)
UFMIP applies to all FHA loans. It is calculated at 1.75% of your base FHA loan, which is your home's purchase price less your down payment.
Example:
$100,000 purchase price
- $3,500 (3.5%) down payment
= $96,500 base loan amount
$96,500 x 1.75% = $1,688 UFMIP
UFMIP is added to your base loan amount to establish your initial FHA loan balance.
Annual FHA Mortgage Insurance Premium (FHAMIP)
FHAMIP is more complicated. FHAMIP rates vary depending upon your specific loan parameters, particularly down payment, loan term, and interest rate. Our FHA loan calculator accounts for each variable and precisely calculates your full FHA loan payment, including FHAMIP.
Example:
Monthly FHAMIP on a 30-year FHA loan with a $100,000 purchase price, $3,500 down payment, and 3.5% interest rate is $67.76.
How do FHA payments work?
Your monthly FHA payment consists of five items.
- FHAMIP
The mortgage insurance premium paid to FHA insuring the lender from default. - Property Taxes
FHA requires your annual property taxes to be included in your mortgage payment. You pay 1/12th of your annual taxes monthly. - Homeowner's Insurance
Your homeowner's insurance is paid similarly to property taxes and is also required. You pay 1/12th of your annual premium monthly. - Interest
A portion of your payment will go towards interest that has accrued since your previous payment. - Principal
The remaining portion of your payment reduces your actual loan balance. This amount will be small early on during repayment but will increase as your loan balance decreases.
Accounting for each piece is crucial when budgeting for an FHA loan.
Need more answers?
We are here to help. Submit your FHA question and we'll provide the answer.