FHA loans” are mortgages insured by the Federal Housing Administration (FHA), which can be issued by any FHA-approved lender in the United States.


Congress established the FHA in 1934 to help lower income borrowers obtain a mortgage that otherwise would have trouble qualifying. In 1965, the FHA became part of the Department of Housing and Urban Development’s (HUD) Office of Housing.


Before the FHA was established, it was common for homeowners to put down a staggering 50% of the value of the property as a down payment on short-term balloon mortgages, which clearly wasn’t practical going forward.


Unlike conventional loans, FHA loans are government-backed, which protects lenders against defaults, making it possible to for them to offer prospective borrowers more competitive interest rates on traditionally more risky loans.


An FHA home loan works like any other mortgage in that you borrow a certain amount of money from a lender and pay it back, typically over 30 years. The main distinction is that FHA loans charge both upfront and monthly mortgage insurance premiums, often for the life of the loan.


Frequently Asked Questions

What is the minimum down payment on an FHA loan?

Your down payment can be as low as 3.5% of the purchase price, assuming you have at least a 580 credit score.  And closing costs can be bundled with the loan. In other words, you don’t need much cash to close.


In fact, gift funds can be used for 100% of the borrower’s closing costs and down payment, making them a truly affordable option for an individual with little cash on hand.


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Can you get an FHA loan with zero down?


Technically no, you still need to provide 3.5% down.  But if the 3.5% is gifted by an acceptable donor, it’s effectively zero down for the borrower.


For a rate and term refinance, you can get a loan-to-value (LTV) as high as 97.75% of the appraised value (plus the upfront mortgage insurance premium.)


However, it’s important to note that while the FHA has relatively lax guidelines for its loans, Capital International Financial underwrites FHA Loans with no Lender Overlays. If FHA allows it, we'll do it.


And keep in mind that the FHA doesn’t actually lend money to borrowers, nor does the agency set the interest rates on FHA loans, it simply insures the loans.


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What is the max loan amount for an FHA loan?


The max loan amount (national loan limit ceiling) for FHA loans for one-unit properties is $625,500, In Most of Florida, however, the Loan Limit is $345,000.00. Some areas like Monroe County and Collier County are higher, while other counties could be as low as $ $271,050.


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What are the FHA loan income requirements?


Despite some misconceptions, there is no minimum or maximum income required for an FHA loan. This means both low-income and wealthy home buyers can take advantage of the program if they so choose.


However, there are DTI limits that the applicant must abide by, like any other mortgage, though the FHA is relatively liberal in this department.


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Types of FHA Loans

The FHA has a variety of loan programs geared toward first-time homebuyers, along with reverse mortgages for senior citizens, and has insured more than 34 million mortgages since inception.


FHA loans are available for both purchases and refinances, including cash out refinances. Capital International Allows Cash out Refinances of up to 85% LTV.


For those with existing FHA loans looking to refinance to another FHA loan, the streamline refinance program is a quick and easy option that provides a ton of flexibility, even for those who lack home equity.


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Does FHA offer ARM loans?


Yes, FHA loans can be either adjustable-rate mortgages or fixed-rate mortgages. The FHA 30-year fixed loan is certainly the most common.


However, many FHA lenders offer both a 5/1 ARM and a 3/1 ARM. If the interest rate is adjustable, it will be based on the 1-Year Constant Maturity Treasury Index, which is the most widely used mortgage index.


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Does FHA offer 15-year loans?


Absolutely! You can get a variety of different fixed-rate FHA products, including a 15-year fixed from most lenders. Some may even offer a 10-year fixed product, a 20-year fixed, or even a 25-year fixed.


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Can FHA loans be used on 2-4 unit properties?


FHA loans can be used to finance 1-4 unit residential properties, including condominiums, manufactured homes and mobile homes (provided it is on a permanent foundation), along with multifamily properties.


However, FHA loans are generally only reserved for borrowers who intend to occupy their properties.


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Can I have more than one FHA loan?


You may only hold one FHA loan at any given time. The FHA limits the number of FHA loans borrowers may possess to reduce the chances of default.


For example, they don’t want one individual to purchase multiple investment properties all financed by the FHA, as it would put more risk on the agency. But there are certain exceptions that allow borrowers to hold more than one FHA loan.


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Can I get an FHA loan on a second home?


A co-borrower with an FHA loan may be able to get another FHA loan if going through a divorce, and a borrower who outgrows their existing home may be able to get another FHA loan on a larger home, and maintain the old FHA loan on what would become their investment property.


It’s also possible to get a second FHA loan if relocating for work, whereby you purchase a second property as a primary residence and keep the old property as well.


But you’ll need to provide supporting evidence in order for it to work.


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Do FHA Loans Require Mortgage Insurance?


One downside to FHA loans is that the borrower must pay mortgage insurance both upfront and annually, regardless of the LTV ratio.


This differs from privately insured mortgages, which only require mortgage insurance if the LTV is greater than 80%.


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Do FHA Loans Have Prepayment Penalties?


The good news is FHA do NOT have prepayment penalties, meaning you can pay off your FHA loan whenever you feel like it without being assessed a penalty.


Prepayment penalties aren’t very common these days, though they were quite prevalent on conventional loans during the housing boom in the early 2000s.


There is a caveat…


However, there is one thing you should watch out for. Though FHA loans don’t allow for prepayment penalties, you may be required to pay the full month’s interest in which you refinance or pay off your loan because the FHA requires full-month interest payoffs.


In other words, if you refinance your FHA loan on January 10th, you might have to pay interest for the remaining 21 days, even if the loan is technically “paid off.”


It’s kind of a backdoor prepay penalty, and one that will probably be revised (removed) soon for future FHA borrowers.  If you’re a current FHA loan holder, you may want to sell or refinance at the end of the month to avoid this extra interest expense.


Update: As expected, they eliminated the collection of post-settlement interest. For FHA loans closed on or after January 21st, 2015, interest will only be collected through the date the loan closes, as opposed to the end of the month. Legacy loans will still be affected by the old policy if/when they are paid off early.


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Can I get an FHA loan with bad credit?


Borrowers with credit scores of 580 and above are eligible for maximum financing, or just 3.5% down. This is the low-down payment loan program the FHA is famous for.


And a 580 credit score is what I would define as “bad,” so the answer to that question is yes.


What if my credit score is below 580?


If your credit score is between 500 and 579, your FHA loan is limited to 90% loan-to-value (LTV), meaning you must put down at least 10%. This is why you’ll probably want to aim higher.


If your credit score is below 500, you are not eligible for an FHA loan.