What is the FHA?

Buying a home for the first time can be overwhelming, especially thinking about the huge costs that come with it. However, it doesn’t have to be, there are programs available to first-time buyers that can help make the purchase more approachable.

One of the ways that makes purchasing a home more approachable is an FHA insured loan. FHA stands for Federal Housing Administration (who insures the loans), and the loan itself is issued by an FHA-approved lender. These loans are generally associated with first-time buyers because typically, the buyer can qualify with a lower credit score and can put less money down.

Along with the FHA loan, a buyer will also need to pay MIP (Mortgage Insurance Premiums). There is an initial MIP charge, calculated as a percentage (1.75% in 2020) of the base loan amount, which can be rolled into the loan or paid at closing. There is also a monthly PMI that is calculated based on the loan amount, length of the loan, and how much you put down. In 2020 the MIP was typically around 0.85% of the loan amount.

 

 

FHA LOAN

CONVENTIONAL LOAN

Minimum Credit Score

500

620

Down Payment

3.5% with credit score of 580+ and 10% for credit score of 500 to 579

3% to 20%

Loan Terms

15 or 30 years

10, 15, 20, or 30 years

Mortgage Insurance

Upfront MIP + Annual MIP for either 11 years or the life of the loan, depending on LTV and length of loan

None with down payment of at least 20% or after loan is paid down to 78% LTV

Mortgage Insurance Premiums

Upfront: 1.75% of the loan + Annual: 0.45% to 1.05%

PMI: 0.5% to 1% of the loan amount per year

Down Payment Gifts

100% of down payment can be a gift

Only part can be a gift if down payment is less than 20%

Down Payment Assistance Programs

Yes

No

Source: Federal Housing Administration (FHA) Loan

 

To find out if you qualify for an FHA loan, or to see if an FHA loan is a good fit for you, start a conversation with your lender to see what would be best for you. Have a question about this article? Reach out directly to Sarah Leland, or leave your question or comment below!

 

Sarah Leland

Written by Sarah Leland

Sarah Leland grew up in Seattle and is proud to call it her home. Sarah is a real estate broker for RPA and enjoys helping clients find their perfect home, as well as using her marketing expertise to help sellers properly promote their property. Reach out with any questions and she will be happy to help!

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