FHA Loans - What Should You Know?

If you’re looking to buy a new home or even a fixer-upper, you may be wondering what an FHA loan is and if it’s right for you. Here are the top ten points that set this type of mortgage apart.


What is an FHA Loan?

An FHA loan is a government-backed loan issued by an approved FHA lender that is insured by the Federal Housing Administration (FHA). FHA Loans feature appealing rates for primary residences only and are designed for low- to moderate-income borrowers. Two advantages to FHA loans is that they don’t need a significant down payment and don’t require high credit scores compared to normal conventional loans.


FHA Loan Features & Requirements

1.    Government-insured mortgage

2.    Has low-interest rates

3.    For primary residence only

4.    Minimum 580 credit score

5.    Low down payment

6.    There are maximum loan limits

7.    Requires private mortgage insurance (PMI)

8.    The down payment can be a gift

9.    Can use on fixer-uppers

10.  The seller can pay some closing costs


FHA vs Conventional Loan

When it’s time to buy a home, the two loans most borrowers compare are FHA vs. conventional loans. There are pros and cons for FHA loans as with conventional loans and it depends on several factors that apply to each individual borrower. Read on to see the breakdown of FHA vs. conventional loans and see which is best for you.


Mortgage Insurance –

With an FHA loan, you’ll have mortgage insurance for the life of the loan. In the past, you could cancel it once you had 20% equity, but not any longer. For a conventional loan, you don’t have mortgage insurance if you put 20% down; or once you have 20% equity, you can ask the lender to remove it. 


Primary Residence –

FHA loans are for your primary residence only. If you want to buy a second home, a rental, or an investment property, you’ll have to get a conventional loan instead.


Credit Requirements –

FHA loans have some of the most lenient credit guidelines of any loan product. Borrowers can have a score as low as 580. And, under some circumstances, even lower than 580, but you’ll have to put more money down. With most conventional loans, you’ll need a score of 620.


Government Loan

The government insures this type of loan. And the purpose is to help borrowers who wouldn’t otherwise qualify for a mortgage be able to become homeowners.



Even though there’s mortgage insurance for the life of the loan, the monthly loan payment might be less than a conventional loan. So when comparing loan products to see how much house you can afford, don’t let the PMI scare you off.



FHA Loan Limits

Depending upon your location, the Federal Housing Administration has a limit on how much they will lend on a home. These limits vary from state to state and county to county just as the price of a home can be higher or lower. For example, it will cost you more to buy a home in California than if you wanted to buy a new house in Florida. So if you’re shopping for a new home and considering an FHA loan, make sure the price is within their lending limits.


You can search the FHA mortgage limits here.


Other Important Information About FHA Loans

There are other things to consider when buying a home with an FHA loan. Here are a few:


Fixer-uppers can be a problem unless you get a particular loan called a 203K. With this type of loan, you can finance both the cost of repairs and the price of the home. There are specific guidelines on how much you can get for repairs and what type they can be.


If you’re not getting a 203K and looking at a house with structural problems (like significant dry rot or a bad roof), an FHA loan won’t be the way to go. That’s because before the loan closes, the seller will need to fix what the appraiser finds, and they might want to sell the house as-is.


Appraisals and inspections are stricter. Since the government is lending their money - they want to make sure the house is sound, and there are no significant problems. It doesn’t have to be the most modern or up-to-date house, but it needs to be in good condition. Because of that, some home sellers don’t want to accept FHA financing. They’d rather have a buyer with a conventional loan where the appraisal is less strict.


That’s a huge advantage of purchasing a newly built home because FHA financing isn’t a problem. You won’t need to worry about the inspector finding dry rot or a bad roof.


With both FHA loans and conventional loans, you can get a gift for part of the down payment. That can make homeownership become a possibility. Plus, as long as it’s in the sales contract, the seller can pay for some of the buyer’s closing costs.


That wraps it up on FHA loans. Now you can see why the dream of buying a home can become a reality — thinking of buying your first home? Discover how Pulte makes home buying easy.



Contributed to Your Home blog by Carol Youmans

Looking for more tips, ideas or inspiration? Return Home here.

Published 9.24.19

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