FHA Loan

FHA loans are designed to help first-time homebuyers and those with lower credit scores or limited savings get into homeownership. The government insures the loan, so lenders take less risk and can offer more flexible terms.

Key Benefits: ✅ Low down payment: 3.5% with credit score 580+ ✅ Lower credit requirements: 580+ credit score (500-579 requires 10% down) ✅ Easier approval: More lenient debt-to-income ratios ✅ Gift funds allowed: Down payment can come from family gifts ✅ Assumable: Buyer can take over your loan when you sell

**The Catch

• Mortgage Insurance:** ❌ Upfront MIP: 1.75% of loan amount (can be rolled into loan) ❌ Annual MIP: 0.45-1.05% of loan balance every year ❌ MIP never drops off on loans with less than 10% down

Example MIP Costs: Scenario: $300,000 loan, 3.5% down ($10,500)

• Upfront MIP: $300,000 × 1.75% = $5,250 (added to loan)
• Annual MIP: $300,000 × 0.85% = $2,550/year = $212.50/month
• Total loan amount: $305,250

MIP for 30-year loan = $76,500 (never drops off)

FHA Loan Limits (2025):

• Low-cost areas: $498,257
• High-cost areas: Up to $1,149,825 (varies by county)
• Limits prevent FHA loans on expensive properties

FHA vs Conventional:

When FHA Makes Sense:

• Credit score 580-680
• Less than 10% down payment
• Higher debt-to-income ratio (up to 50%)
• First-time homebuyer

When to Avoid FHA:

• You have 10%+ down payment
• Credit score 700+
• Planning to stay in home 10+ years (MIP adds up)
• Consider conventional, then refinance out of PMI later

Refinancing Out of FHA: Many buyers start with FHA, build equity and credit, then refinance to conventional to eliminate MIP.