First-Timer Primer: Understanding FHA Loans

by Lark Turner


To get first-timers ready for the spring market, UrbanTurf will be a running a series of articles next week to help educate buyers on the process. Here is an article that gives a sense of the type of topics we will cover.

A slightly looser mortgage lending market, along with the recent lowering of the Federal Housing Administration’s (FHA) mortgage insurance rate, have made FHA loans more palatable than ever. In this First Timer Primer, we run down the basics of FHA loans and who’s eligible for what.

How is an FHA loan different from a regular loan?

The program’s goal is to help buyers with low or moderate incomes, or less-than-stellar credit, build equity through homeownership. FHA loans are guaranteed by the federal government and down payments are generally much lower than those on a standard mortgage (e.g. 3.5% versus 10-20%), because those buyers usually can’t front a high down payment. In exchange for getting this low down payment, though, FHA buyers must pay mortgage insurance to the federal government to help offset its risk. That’s a long way of saying your monthly payments will likely be higher, and you’ll be paying more over the life of a loan, with an FHA loan. You’ll also have to pay an upfront mortgage insurance premium (MIP) of 1.75 percent of the home loan, which can be paid at closing or included in the mortgage.

The higher mortgage insurance costs may be enough to scare some buyers off, but FHA recently lowered the mortgage insurance rates on its loans, making it a more attractive option for the average buyer.

Down Payment

Down payments with an FHA loan can be as low as 3.5 percent. To be eligible, a buyer has to have a credit score of 580 or higher. Those with lower scores must put down at least 10 percent.

Loan Limits

DC is considered a “high cost area” by FHA. That means residents can buy one-unit homes and receive an FHA loan for up to $625,500, the maximum loan amount offered by the FHA.


As we’ve previously reported, now is a pretty good time to think about refinancing thanks to low interest rates. Even buyers with a conventional mortgage currently can refinance with an FHA loan. Lender Ryan Dailey recently told UrbanTurf that the agency’s recently-lowered mortgage insurance rates could make FHA a viable option for buyers who meet the loan limits.

“Even if the rate is the same or slightly lower, if you can snag the new mortgage insurance it’s going to make the payments markedly lower,” he said. “Basically, it’s making FHA attractive again.”

See other articles related to: fha mortgage insurance, fha loans

This article originally published at https://dc.urbanturf.com/articles/blog/first_timer_primer_understanding_fha_loans/9636

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