What Is An FHA Loan?

Buying a home in today's economy can be incredibly challenging—especially for first-time home buyers. Thankfully, FHA loans are designed to make home-buying dreams a reality for borrowers like you. The Federal Housing Administration (FHA) was established in 1934 to improve housing standards and conditions and to provide an adequate home financing system through insurance of mortgages. Families that would otherwise be excluded from the housing market were finally able to buy the homes of their dreams under this program.

Here are some of the key rates and terms to bear in mind if you're considering an FHA mortgage loan:

Interest Rates: FHA mortgage interest rates are generally competitive with conventional mortgage rates. Your specific interest rate will depend on several factors, including your credit score, the amount of your down payment, and the term of your loan.
Down Payment: FHA loans require a minimum down payment of 3.5% of the purchase price. This is lower than the down payment required for many conventional mortgage loans.
Mortgage Insurance: FHA loans require both an upfront mortgage insurance premium (MIP) and an annual MIP. The upfront MIP is typically 1.75% of the loan amount and can be rolled into the loan. The annual MIP ranges from 0.45% to 1.05% of the loan amount, depending on the size of the down payment and the length of the loan.
Loan Limits: FHA loans have limits on the amount you can borrow, which vary by location. In most areas, the maximum loan amount for a single-family home is $356,362 in 2022, but this can be higher in certain high-cost areas.
Credit Score: FHA loans typically have more lenient credit score requirements than conventional loans. While a credit score of 620 is typically the minimum required for a conventional loan, FHA loans may be available to borrowers with credit scores as low as 500, although a higher score may be required to qualify for the best interest rates.
Loan Terms: FHA loans are available in a variety of terms, including 15-year and 30-year fixed-rate loans, as well as adjustable-rate loans. The term you choose will affect your monthly payment and overall interest costs.