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The Federal Housing Administration (FHA) doesn’t make or guarantee loans, but it’s been insuring home loans since 1934. FHA loans offer a low down payment option with less stringent qualification requirements than a conventional loan.

We’ll go over why an FHA loan could be right for you if you’re looking to buy or refinance a home.

Why Is an FHA Loan a Good Option for Single or First-Time Homebuyers?

First-time and single homebuyers should explore FHA loan options for several reasons:

  • It’ll be easier to qualify for an FHA home mortgage because your loan will be insured by the government, making your application more attractive to lenders.
  • An FHA loan often costs less than a conventional mortgage and is more forgiving if you have issues with credit and payments.

To go over these advantages in greater detail, let’s take a look at a couple of key numbers.

Low Down Payment

FHA home loans don’t require a large down payment at closing time, which is a huge plus for first-time home buyers or a person seeking to buy a home on a single income. FHA clients can get financing with a loan-to-value (LTV) ratio of up to 96.5%. This means you’d have the ability to get a new home with as little as 3.5% down.

Yet another advantage of FHA loans for single or first-time buyers is that FHA mortgage terms may allow you to wrap closing costs into your mortgage. Because typical closing costs for FHA home loans are around 2% or 3% of the total mortgage, this option can allow you to get a loan that would otherwise be cost prohibitive if you don’t have stacks of extra cash at your disposal.

Credit Advantages

There are several advantages to FHA mortgages, particularly if you’re a lower- to middle-income buyer or you have experienced financial difficulties in the past. It’s important to note that the following guidelines apply to loans originated by Quicken Loans. Other lenders may have different requirements.

Qualify with Less-Than-Perfect FICO®

Clients who are otherwise well-qualified may be able to get a loan with a FICO score of as low as 580. This may enable them to get a mortgage even if they’re trying to rebuild their credit after past mistakes.

Higher Debt-to-Income Ratios Allowed

If you have a credit score in the mid-to-high 600 range, your allowable debt-to-income (DTI) ratio is higher on an FHA loan than the DTI ratio requirements on conventional loans. This means that if your debt is relatively high compared to your income, you may still qualify for an FHA loan.

Credit Blemishes

If you declared bankruptcy, you may be able to get an FHA loan a year or two from the date of your bankruptcy discharge or dismissal, as long as you’ve maintained good credit since your debts were discharged. The length of the waiting period depends on the type of bankruptcy filed.

Furthermore, if you foreclosed on a former home and have kept your credit in great shape since the foreclosure, you can apply for an FHA loan three years following the final date of your foreclosure.

How Could FHA Cash-Out Refinancing Options Help Me?

If you know you’ll soon need cash for college tuition or major home improvements, then an FHA cash-out refinancing option may be just what you need.

You may be able to get a lower interest rate than traditional home equity financing. An FHA refinancing loan offers amounts up to 85% of the appraised value. This enables you to convert more of your equity into cash compared to a conventional loan from Fannie Mae or Freddie Mac.

Costs Associated with FHA Loans

Another appealing feature of FHA loans is that their mortgage rates and terms are competitive with conventional mortgages. Interest rates on FHA loans generally fall within .125% of rates on conventional loans.

Also, with an FHA loan, you have the option of having the upfront mortgage insurance premium rolled into the loan, meaning the 1.75% of the loan amount that would normally be paid at closing is added on to the loan balance to be paid off over time.

There is a monthly mortgage insurance charge. The amount of this depends on the size of your down payment.

Are There Any Special Requirements or Limits on FHA Mortgages?

Another consideration is the limit on the amount of money you can borrow with an FHA loan. Although the upper limit for most conforming loans is $453,100 ($679,650 in Alaska and Hawaii), FHA loan limits are set on the basis of your county and are often lower than these amounts.

Because FHA home loans also have requirements for debt-to-income ratios, maximum loan amounts, and other details, it’s important to ask your lender for help when deciding which mortgage is right for you.

If you’d like to look at an FHA loan as an option in your purchase or refinance process, you can get started online through Rocket Mortgage® by Quicken Loans. If you’d prefer to get started over the phone, you can give us a call at (888) 980-6716.

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This Post Has 14 Comments

  1. I am looking at a home the asking price is $80,000, the appraised value is $124,000. With a FHA loan could I borrow $110,000 in order to put new windows, an additional bath and an addition on it to make the master bedroom larger ?

    1. Hi Melissa:

      The type of loan you’re referring to would be an FHA 203K loan. Although we don’t often these types of loans at Quicken Loans, they do exist. Good luck!

      Kevin Graham

  2. I have been told that my little house will not qualify for a FHA loan because I have no gutters and use my pellet stove as main heat. I live in a rural area and most people here heat with wood. . I would like to make some improvements on my house and would be interested in a reverse mortgage but I have been told that has to be a FHA loan? Where can I find a list of things that FHA loans require? Definitely not interested in another appraisal that costs me five hundred bucks.

    1. Hi George:

      FHA guidelines state you have to have a permanent heating system, but there is a provision that can be common to the area. I can tell you that reverse mortgages are insured by the FHA, so they have those appraisal requirements. FHA does have some public guidelines on this, but ultimately, I think you should be able to talk to one of our home loan experts before going much further to find out what’s possible. You can go ahead and call (888) 980-6716.

      Kevin Graham

  3. Hi.. I am 47 yrs old i have a credit score of 518; at this time I have no credit cards and no car payment. I have a great career as an RN /administrater in nursing in cape coral, fl for the last 6 months and my annual salary is 70,000 . I am able to put 20 % down and am looking for a small cottage or single family home for under 100,000. Nothin fancy, but in great condition and something that meets my needs and life style. I cant see putting into rent anymore..i pay 900 a month for 2 yrs never being late. With my credit score how can i make this happen without having to wait? i want something that i can call mine..would any morgage company take a chance on me?
    Thank you,

    1. Hi Christine:

      Unfortunately, there’s no way to do this without waiting. The major mortgage investors have strict regulations that we have to follow as an originator. You would at least need to get your credit score up to 580 and we would have more options for you once it got to 620. I recommend a few things:

      Check out our friends at QLCredit. You can get your VantageScore 3.0 score and report for free without affecting your score every two weeks. You’ll not only get your score, but you’ll get tips on how you can improve.

      We also have a blog post with a lot of great tips on how you can rebuild your credit score up. I hope this helps!

      Kevin Graham

    1. FHA loans always require that you pay mortgage insurance premiums. That’s correct. You can avoid them by refinancing into a conventional loan once you reach 20% or more equity. Hope this helps!

      1. That is not what the information that Quicken states on this website. It says:

        “another appealing feature of FHA loans is that their mortgage rates and terms are competitive with conventional mortgages. Interest rates on FHA loans generally fall within .125 % of rates on conventional loans. Also, with an FHA loan, your mortgage insurance is funded into the loan, meaning a premium of 1.5% is added to the loan balance instead of being paid out-of-pocket.”

        So which is it? I can tell you that based on my mother’s recent refinance, that Quicken charged her for mortgage insurance, even though it was an FHA loan, with well over 20% in equity. If the mortgage insurance is funded into the loan, which is GUARANTEED BY THE GOVERNMENT…..They should not require mortgage insurance. If they do, then the 1.5% should not be added to the mortgage. The House appraised for $168k and the refinance amount was $125k. That is 34.4% equity. That seems a bit fishy to me. Does Quicken sell mortgage insurance? The cost of mortgage insurance, over 10 years is $10k. This is insurance that covers the lender, in the event the property goes in to foreclosure and the amount from the sale of the home, does not cover the existing loan. It is highly unlikely that it would happen, and except for the bubble that the banking industry caused in 2003-2008, hardly ever happened in the past. The mortgage industry is the only one who does not pay the cost of insuring its interests. The fact is, the same people who write mortgages, also sell mortgage insurance. You don’t get to shop around for it, or have any choice in the matter. The whole industry is a money grubbing leach on society if you ask me.

        1. Hi Robert:

          I’m going to look into that paragraph you’ve quoted because the only thing that can be funded into the loan balance as far as mortgage insurance is the upfront premium. You still have a monthly mortgage insurance premium to pay. We’re going to fix this. That being said, the dateline on this article is seven years old. The FHA has changed its policies regarding mortgage insurance several times since then. We do have plenty of updated content on FHA mortgages if you search the site, but for one example on mortgage insurance, check this out.

          To the rest of your comment, if you get an FHA loan, they are guaranteed by the government. One of the requirements of the Housing and Urban Development Department when it comes to FHA loans is that you have to pay for mortgage insurance. Any money we collect for mortgage insurance goes directly to the provider of the mortgage insurance. We don’t sell mortgage insurance and in the event you default, the money in the insurance policy is meant to protect the FHA from having to pay out too much.

          I’m going to get your comment to our client relations team and look into that paragraph. Thanks for reaching out!

          Kevin Graham

  4. Where can I find more information on FHA 5/1 ARM loans – and is there THAT much of a difference in the interest rates in 2016 vs the 30 year?

    1. Hi Missy:

      You can find more information on our ARM loans page. Obviously, the rate difference depends on how much you looking to pay in prepaid interest, but you might be looking at the difference of around 0.25% – 0.375%. Hope this helps!

      Kevin Graham

    1. Hi Ashley:

      You can apply online using Rocket Mortgage and get a preapproval that’s personalized for your goals and financial situation. If you would prefer to talk to someone and get started over the phone, you can call 888-728-4702.

      Kevin Graham

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