Important FHA Loan Terminology
September 8, 2023
FHA Mortgage Insurance Premium (MIP)
FHA loans require two types of mortgage insurance premiums: an upfront MIP and an annual MIP. The upfront MIP is typically financed into the loan amount or paid as a lump sum at closing.
The annual MIP is an ongoing premium that is added to your monthly mortgage payment. The amount depends on the loan-to-value ratio, the loan amount, and the term of the loan.
Minimum Down Payment
These government-backed mortgages typically require a lower down payment compared to conventional loans. The minimum down payment was 3.5% of the purchase price for borrowers that satisfy a particular lender's requirements. A 10% down payment may be required for borrowers with credit scores between 500 and 580 if a lender has more stringent requirements.
Credit Score Requirements
FHA loans are known for being more lenient with credit score requirements compared to conventional loans. However, individual lenders may still have their own minimum credit score standards.
FHA Loan Limits
FHA loan limits vary by location (county) and establish how much can be borrowed based on property type. They are set annually by the Federal Housing Finance Agency. Borrowers should check the FHA loan limits for their area to ensure their desired home purchase price falls within the limit. Metro areas with higher housing costs, sometimes called high cost areas, tend to have higher loan limits.
Debt-to-Income Ratio (DTI)
Simply put, this is the comparison of your total debt to your total income. Lenders will evaluate your debt-to-income ratio to determine your eligibility for an FHA loan. Generally, your total monthly debt payments, including your mortgage payment, should not exceed a certain percentage of your monthly income.
Property Requirements
FHA loans have specific property requirements to ensure the home is safe and livable. The property must meet certain standards, and the borrower may need to pay for a home appraisal to confirm compliance.
Mortgage Term
The number of months you will be making payments on your loan is call the term. FHAloans are available in various terms, including 15-year and 30-year fixed-rate mortgages. Borrowers should choose a term that suits their financial situation and long-term goals.
Streamline Refinance
Borrowers with existing FHA loans may be eligible for a streamline refinance, which can make it easier to lower their interest rate and monthly payments without a full credit check or appraisal.
Prepayment Penalties
This is a fee paid by borrowers when a loan is paid off before the full term. FHA loans typically do not have prepayment penalties. They allow borrowers to make extra payments or pay off the loan early without incurring any additional fees.
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FHA Loan Articles
August 19, 2026Homebuyers who have enough cash for a down payment still need to consider their full financial picture before choosing between a conventional mortgage and an FHA loan. Having cash on hand changes the math for both options, but savings alone won't make a conventional loan the automatic winner. Credit scores, current debt, and the type of property you want to buy all determine which loan will cost less over time.
August 11, 2026Homeowners with FHA adjustable-rate loans need to track their loans more closely. That is because FHA ARM loans start with introductory interest rates that eventually expire and are subject to change afterwards based on market rates. When interest rates rise, monthly housing payments climb on ARM loans, pushing many homeowners to consider refinancing into a fixed-rate mortgage.
August 10, 2026If you want to buy a home with an FHA mortgage, you must set up an escrow account to cover property taxes, homeowner insurance, and upfront closing expenses. While the FHA loan program has rules for funding these accounts, buyers often do not realize those rules can include approved and unallowed sources for escrow funds. What do you need to know before you set up and fund your escrow account for an FHA mortgage?
August 3, 2026Buying a home in a high-cost area requires understanding how FHA loan limits shape your financing options. Does the house for sale have a price above the local FHA loan limit? You may need to explore your jumbo loan options. There are conventional jumbo loans and FHA versions. Which is right for you? Much depends on your financial needs, plans, and goals for the loan.
July 30, 2026There is a common misconception about FHA loans that only a first-time home buyer can use the program. This is not true; repeat buyers can qualify for an FHA loan, but why does this misconception exist? Partially because state and local programs have first-time buyer requirements for down payment and/or closing cost assistance programs. So while you do not need to be a first-time buyer to get an FHA loan, you may need to meet that definition to qualify for down payment help.
