As a trusted personal finance writer and mortgage specialist, Maryalene LaPonsie has interviewed hundreds of certified financial planners, CPAs and wealth advisors, and distills their expertise into accessible articles on topics ranging from retireme.
Maryalene LaPonsie Mortgages ExpertAs a trusted personal finance writer and mortgage specialist, Maryalene LaPonsie has interviewed hundreds of certified financial planners, CPAs and wealth advisors, and distills their expertise into accessible articles on topics ranging from retireme.
Written By Maryalene LaPonsie Mortgages ExpertAs a trusted personal finance writer and mortgage specialist, Maryalene LaPonsie has interviewed hundreds of certified financial planners, CPAs and wealth advisors, and distills their expertise into accessible articles on topics ranging from retireme.
Maryalene LaPonsie Mortgages ExpertAs a trusted personal finance writer and mortgage specialist, Maryalene LaPonsie has interviewed hundreds of certified financial planners, CPAs and wealth advisors, and distills their expertise into accessible articles on topics ranging from retireme.
Mortgages Expert Chris Jennings Loans & Mortgages EditorChris Jennings is a writer and editor with more than seven years of experience in the personal finance and mortgage space. He enjoys simplifying complex mortgage topics for first-time homebuyers and homeowners alike. His work has been featured in a n.
Chris Jennings Loans & Mortgages EditorChris Jennings is a writer and editor with more than seven years of experience in the personal finance and mortgage space. He enjoys simplifying complex mortgage topics for first-time homebuyers and homeowners alike. His work has been featured in a n.
Chris Jennings Loans & Mortgages EditorChris Jennings is a writer and editor with more than seven years of experience in the personal finance and mortgage space. He enjoys simplifying complex mortgage topics for first-time homebuyers and homeowners alike. His work has been featured in a n.
Chris Jennings Loans & Mortgages EditorChris Jennings is a writer and editor with more than seven years of experience in the personal finance and mortgage space. He enjoys simplifying complex mortgage topics for first-time homebuyers and homeowners alike. His work has been featured in a n.
| Loans & Mortgages Editor
Updated: Sep 9, 2024, 8:35am
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Whether you’re buying your first or fifth home, an FHA loan can make it easier to afford a mortgage. These loans typically have lower down payment and credit score requirements compared to conventional loans.
FHA loan rates can vary by lender, though, so be sure to compare your options before submitting a mortgage application.
An FHA loan is a mortgage insured by the Federal Housing Administration. This government agency guarantees the loan, but it doesn’t actually lend money. Instead, lenders who participate in the FHA program are the ones who provide funds to homebuyers with government backing.
It’s worth noting that when we say the FHA insures the loan, that insurance isn’t for you. Rather, the government is insuring the lender and promising they won’t be out the money if you default on your payments.
For lenders, FHA loans come with the security of government backing. However, that security has a price tag for borrowers.
All home buyers who use an FHA loan will need to pay mortgage insurance premiums, otherwise known as MIPs. These premiums insure lenders and guarantee they will be paid even if a borrower defaults on their loan.
You’ll have to pay both an upfront MIP and an annual MIP when taking out an FHA loan. The good news is that if you make a down payment of 10% or more, the premium will automatically end after 11 years. Otherwise, the insurance premiums remain for the life of the loan.
In March 2023, the government reduced the cost of monthly MIP payments by 30 basis points for all FHA borrowers who took out loans after March 20, 2023.
If you have trouble qualifying for a conventional mortgage, you might find success applying for an FHA loan, which typically have less stringent requirements like:
These guidelines are FHA minimums, but lenders are free to overlay their requirements for applicants. For instance, some lenders may only approve your application if your credit score is at least 600.
FHA loans also have property requirements, and not every house will qualify. To be eligible for an FHA-backed mortgage, your home must:
There’s also a cap—or limit—on the amount you can borrow with an FHA mortgage. This amount depends on where you live in the country. In 2024, the FHA loan limit ranges from $498,257 to $1,149,825 for one-unit properties.
Much of the nation falls at the lower end of that range, but if you’re buying a home in a high cost-of-living area—such as New York City, Washington D.C. or San Francisco—you can borrow up to the ceiling. There are exceptions for Alaska, Hawaii, Guam and the Virgin Islands, where the one-unit limit is $1,724,725.
Check your rates today with Better Mortgage.
Like all financial products, there are benefits and drawbacks to FHA loans.
Here are some of the reasons you might want to take out an FHA loan:
FHA loans aren’t ideal for everyone, though. Here are the main drawbacks:
If you have relatively little savings, you might have no choice but to take out an FHA loan. With the exception of government mortgage programs through the VA and USDA, an FHA mortgage is one of the cheapest ways to finance a house. It might also be your only option if your credit score is low or you have a higher debt-to-income (DTI) ratio.
On the other hand, if you can qualify for a conventional loan and live in an area with a competitive housing market, it may be better to forego an FHA loan. Not only could it change how a seller perceives your offer, but FHA lending caps could also limit your purchase options.
Talk to a real estate broker to learn more about how an FHA loan could impact the purchasing prospects in your local market. Consider using an FHA loan calculator as well before you apply for a mortgage to see just how much you’ll spend on the principal, interest and other costs such as the MIP.
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As of January 2024, it’s possible to find FHA loan rates below 7% at some institutions. Rates can vary depending on factors such as the length of the loan term, your credit history and down payment amount.
Anyone with a qualifying credit score and adequate income may receive an FHA loan. Some institutions may approve loans for those with credit scores as low as 500, but you’ll need a score closer to 600 if you want to put less than 10% down on your new home.
You’ll need to make a down payment of at least 10% if you want to avoid FHA mortgage insurance premiums. And even then, you must wait 11 years before the premium payments will automatically end. Otherwise, you’ll need to refinance the FHA loan into a different type of loan, such as a conventional loan, to get rid of the MIP payments.
At many institutions, the rates for FHA loans may be slightly lower than those offered for conventional loans. However, keep in mind that an FHA loan comes with additional inspection and fee requirements, including mortgage insurance premiums. Those costs can offset an FHA loan’s lower rates.
In 2024, the maximum mortgage limit for an FHA loan is $498,257 in much of the country. In some areas with a high cost of living, the limit can be as high as $1,149,825. Those limits apply to single-family homes. The limits are higher for two- to four-unit properties.
It depends on the type of loan you’d like to use for your refinance. For example, if you use an FHA streamline refinance, you’ll need to wait six months from your first payment due date and 210 days from your loan’s closing date until you can refinance.
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Mortgages ExpertAs a trusted personal finance writer and mortgage specialist, Maryalene LaPonsie has interviewed hundreds of certified financial planners, CPAs and wealth advisors, and distills their expertise into accessible articles on topics ranging from retirement planning to tax-saving strategies. She is a regular contributor to multiple financial publications, and her work has been syndicated nationwide.
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