Pathway Mortgage | Mortgage Education and News

What is an FHA Loan?

July 15th, 2019 12:22 PM by Davis Love

What is an FHA Loan?

FHA Loans are a popular mortgage product that offer advantages to many buyers, especially first time homebuyers.

FHA Loans are mortgages that are funded by federally approved institutions (private lenders) and insured, or guaranteed, by the Federal Housing Administration.  The money used to guarantee (i.e. insure that a loan is repaid) is funded by two types of mortgage insurance that are attached to every FHA Loan.  FHA Mortgage Insurance is discussed more below. 

Features of an FHA Loan

Two key features of FHA Loans make them advantageous to many borrowers:

  • Up to 96.5% Financing for first time homebuyers
  • 580 minimum credit score

With an FHA Loan, if you have a minimum credit score of 580, you can finance up to 96.5% of your purchase, meaning your down payment is as low as 3.5%.  Most conventional loans require at least 5% down.  It is important to note that there are a number of other qualification factors in addition to minimum score requirements, such as debt to income ratios. 

Mortgage Insurance

Two types of mortgage insurance - Upfront Mortgage Insurance Premium (UFMIP) and Annual Mortgage Insurance Premiums (MIP) are a part of every FHA Loan. 

UFMIP is a one-time, upfront mortgage insurance that is paid by the borrower.  It is equal to 1.75% of the loan amount.  However, UFMIP can be financed with the loan. 

MIP is paid monthly through the borrower's escrow account, and can range from .45 - 1.05% of the loan amount.  For all FHA Loans after July 3, 2013, if the "loan to value" ratio (LTV) is 90% or greater, the MIP will remain in place for the life of the loan.  If the LTV is less than 90%, the MIP will cancel after 11 years. 

Is an FHA Loan right for you?

FHA Loans are a great option for many homebuyers, especially if you are purchasing your first home.  If you have questions about whether an FHA Loan is right for you, or are ready to apply for your mortgage loan, click here to get started on an easy online application, or call Pathway Mortgage at (864) 814-0710 for help today!



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