FHA Loans – Updated Purchase And Refinance Requirements
For borrowers with a credit score of at least 580 and who are placing down payments of at least 3.5%, FH loans are an available borrowing option. Because of these flexible requirements, FHA loans are the best fit for many buyers compared to other types of loans.
Ideal FHA Loan Candidates
FHA loans are an available loan option for borrowers with credit scores of at least 580, and who plan on making a down payment on their home of at least 3.5% of the home’s value or more. See the benefits of FHA loans below and learn if they might be the best borrowing option for you.
What Is An FHA Loan?
An FHA loan is simply a loan that is ensured by the Federal Housing Administration (FHA). Because of this insurance, borrowers of FHA loans are protected against payment defaults. FHA loans have flexible qualifications, making it easy for borrowers to obtain these loans at low interest rates.
FHA Loan Qualifications
- A down payment of at least 3.5% of your new home’s value.
- A credit score of at least 580.
- A debt-to-income ratio (DTI) of no greater than 50% and a steady employment history. Calculate your DTI by summing your monthly debt payments (such as credit card and car payments) and dividing the total by your monthly pre-tax income.
- Upfront payment of the mortgage insurance premium (UFMIP). This will typically be equal to 1.75% of your loan amount.
- Coverage of closing costs, which are typically 2% – 6% of your new home’s cost.
FHA Mortgage Rates
| Product | Rate | APR |
|---|---|---|
| FHA 30 Year Fixed | 2.875% | 3.823% |
| FHA 25 Year Fixed | 2.875% | 3.95% |
| FHA 15 Year Fixed | 2.375% | 3.571% |
30-year FHA Fixed-Rate Loan:
An interest rate of 2.875% (3.823% APR) is for the cost of 1.875 Point(s) ($3,815.63) paid at closing. On a $203,500 mortgage, you would make monthly payments of $976.35. Monthly payment does not include taxes and insurance premiums. The actual payment amount will be greater. Payment assumes a loan-to-value (LTV) of 74.91%. Payment includes a one-time upfront mortgage insurance premium at 1.75% of the base loan amount and a monthly mortgage insurance premium (MIP) calculated at 0.8% of the base loan amount. For mortgages with a loan-to-value (LTV) ratio of 74.91%, the 0.8% monthly MIP will be paid for the first 11 years of the mortgage term. Thereafter, the monthly loan payment will consist of equal monthly principal and interest payments until the end of the loan.
25-year FHA Fixed-Rate Loan:
An interest rate of 2.875% (3.95% APR) is for the cost of 1.875 Point(s) ($3,815.63) paid at closing. On a $203,500 mortgage, you would make monthly payments of $1,083.50. Monthly payment does not include taxes and insurance premiums. The actual payment amount will be greater. Payment assumes a loan-to-value (LTV) of 74.91%. Payment includes a one-time upfront mortgage insurance premium at 1.75% of the base loan amount and a monthly mortgage insurance premium (MIP) calculated at 0.8% of the base loan amount. For mortgages with a loan-to-value (LTV) ratio of 74.91%, the 0.8% monthly MIP will be paid for the first 11 years of the mortgage term. Thereafter, the monthly loan payment will consist of equal monthly principal and interest payments until the end of the loan.
15-year FHA Fixed-Rate Loan:
An interest rate of 2.375% (3.571% APR) is for the cost of 2.125 Point(s) ($4,324.38) paid at closing. On a $203,500 mortgage, you would make monthly payments of $1,418.06. Monthly payment does not include taxes and insurance premiums. The actual payment amount will be greater. Payment assumes a loan-to-value (LTV) of 74.91%. Payment includes a one-time upfront mortgage insurance premium at 1.75% of the base loan amount and a monthly mortgage insurance premium (MIP) calculated at 0.45% of the base loan amount. For mortgages with a loan-to-value (LTV) ratio of 74.91%, the 0.45% monthly MIP will be paid for the first 11 years of the mortgage term. Thereafter, the monthly loan payment will consist of equal monthly principal and interest payments until the end of the loan.
FHA Loan Benefits
- Low credit score requirements.
- Previous bankruptcies does not disqualify you.
- FHA loans can be obtained with 15 or 30 year fixed rates.
- Requires low down payments.
Refinancing options through FHA loans also provide benefits:
- The closing costs of your home can be carried over into your FHA loan. Already possessing an FHA loan automatically qualifies you for refinancing options.
- Home appraisals are sometimes not required, and FHA loan options can often allow you to take cash out from your home's value.
Mortgage Insurance Requirements
For borrowers making smaller down payments, primary mortgage insurance (PMI) may be required. This threshold is a downpayment of 20% of your home’s value.
- PMI payments range between 0.5% and 1% of your loan annually, distributed over 12 payments.
- Once you reach 20% equity in your home, you may be able to request to cancel PMI.
- PMI is often cancelled automatically once you reach 22% equity.
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