Understanding FHA Loans
FHA loans are mortgages insured by the Federal Housing Administration, designed to help first-time homebuyers and borrowers with lower credit scores qualify for homeownership. FHA loans require a minimum down payment of just 3.5% (with a credit score of 580+) compared to 5-20% for conventional loans.
FHA loans have two types of mortgage insurance premiums (MIP). The Upfront MIP (UFMIP) is currently 1.75% of the base loan amount and is typically rolled into the loan. The Annual MIP is paid monthly and currently ranges from 0.45% to 1.05% depending on the loan term, loan-to-value ratio, and loan amount.
Unlike conventional PMI, FHA MIP cannot be removed for loans with less than 10% down payment -- it lasts the entire life of the loan. For this reason, many FHA borrowers refinance to a conventional loan once they have 20% equity to eliminate the insurance premium.
FHA loans have loan limits that vary by county. In 2024, the standard limit is $498,257 for single-family homes, with higher limits in high-cost areas up to $1,149,825.
Frequently Asked Questions
What is the minimum down payment for an FHA loan?
The minimum FHA down payment is 3.5% if your credit score is 580 or higher. If your credit score is between 500 and 579, you need at least 10% down. FHA loans do not require a 20% down payment like some conventional loans.
What is FHA MIP and how long do I pay it?
FHA Mortgage Insurance Premium (MIP) includes an upfront premium (1.75% of the loan, rolled into the loan) and an annual premium (paid monthly). For loans with less than 10% down, MIP lasts the life of the loan. For 10%+ down, it lasts 11 years.
Can I refinance out of FHA MIP?
Yes, once you have 20% equity in your home, you can refinance from an FHA loan to a conventional mortgage to eliminate the ongoing MIP payments. This is a common strategy that can save hundreds of dollars per month.
What are FHA loan limits?
FHA loan limits vary by county and are updated annually. In 2024, the standard floor is $498,257 for single-family homes, while high-cost areas can go up to $1,149,825. Check the HUD website for limits specific to your county.
Who qualifies for an FHA loan?
FHA loans are available to borrowers with credit scores as low as 500 (with 10% down) or 580 (with 3.5% down). You need a debt-to-income ratio under 43% (sometimes up to 50% with compensating factors), steady employment, and the property must be your primary residence.