The FHA, or Federal Housing Administration, provides mortgage insurance on loans made by FHA-approved
lenders. FHA insures these loans on single family and multi-family homes in the United States and its territories. It is
the largest insurer of residential mortgages in the world, insuring tens of millions of
properties since 1934 when it was created.
An FHA loan is a mortgage loan that is insured by the Federal Housing Administration (FHA).
Nowadays, FHA loans are very popular, especially with first-time home buyers because the
requirements are less strict than conventional loans. Borrowers can qualify for an FHA loan
with a down payment as little as 3.5% and a credit score of 580 or higher. The borrower’s
credit score can be between 500 – 579 if a 10% down payment is made. It’s important
to remember though, that the lower the credit score, the higher the interest borrowers
The FHA program was created in response to the rash of foreclosures and defaults that
happened in 1930s; to provide mortgage lenders with adequate insurance; and to help
stimulate the housing market by making loans accessible and affordable for people with
less than stellar credit or a low down payment. Essentially, the federal government insures
loans for FHA-approved lenders in order to reduce their risk of loss if a borrower defaults on
their mortgage payments.
Low Down Payments and Less Strict Credit Score Requirements
Typically an FHA loan is one of the easiest types of mortgage loans to qualify for because it requires a low down
payment and you can have less-than-perfect credit. For FHA loans, down payment of 3.5 percent is required for
maximum financing. Borrowers with credit scores as low as 550 can qualify for an FHA loan.
Another advantage of an FHA loan is that it can be assumable, which means if you want to sell your home, the buyer
can “assume” the loan you have. People who have low or bad credit, have undergone a bankruptcy or have been
foreclosed upon may be able to still qualify for an FHA loan.
Mortgage Insurance is Required for an FHA Loan
You knew there had to be a catch, and here it is: Because an FHA loan does not have the strict standards of a
conventional loan, it requires two kinds of mortgage insurance premiums: one is paid in full upfront -– or, it can be
financed into the mortgage –- and the other is a monthly payment. Also, FHA loans require that the house meet
certain conditions and must be appraised by an FHA-approved appraiser.
Upfront mortgage insurance premium (UFMIP) — this is a one-time upfront monthly premium payment, which means
borrowers will pay a premium of 1.75% of the home loan, regardless of their credit score. Example: $300,000 loan x
1.75% = $5,250.00
Annual MIP (charged monthly) — Called an annual premium, this is actually a monthly charge that will be figured into
your mortgage payment. The amount of the mortgage insurance premium is a percentage of the loan amount,
based on the borrower’s loan-to-value (LTV) ratio, loan size, and length of loan:
Loan Term LTV Ratio Annual Insurance Premium
30 years 95% or less 0.80%
30 years Over 95% 0.85%
For example, the annual premium on a $300,000 loan with term of 30 years and LTV less than 95 percent would be
$2,400: $300,000 x 0.80% = $2,400. To figure out the monthly payment, divide $2,400 by 12 months = $200. So,
the monthly insurance premium would be $200 per month.
How Long Do Borrowers Have to Pay FHA Mortgage Insurance?
The duration of your annual MIP will depend on the amortization term and LTV ratio on your loan origination date.
For loans with FHA case numbers assigned on or after June 3, 2013 borrowers will have to pay mortgage insurance
for the entire loan term if the LTV is greater than 90% at the time the loan was originated. If your LTV was 90% or
less, the borrower will pay mortgage insurance for the mortgage term or 11 years, whichever occurs first.
Term Loan-to-Value (LTV) Ratio Duration
15 years or less 78% or less 11 years
15 years or less 79-89% 11 years
15 years or less 90% or higher Full loan term
Over 15 years 78% or less 11 years
Over 15 years 79-89% 11 years
Over 15 years 90% or higher Full loan term
FHA Loan Requirements
The requirements for FHA loans are set by the Federal Housing Authority and include:
• Borrowers must have a steady employment history or worked for the same employer for the past two years.
• Borrowers must have a valid Social Security number, lawful residency in the U.S. and be of legal age to sign a
mortgage in your state.
• Borrowers must pay a minimum down payment of 3.5 percent. The money can be gifted by a family member.
• New FHA loans are only available for primary residence occupancy.
• Borrowers must have a property appraisal from a FHA-approved appraiser.
• Borrowers’ front-end ratio (mortgage payment plus HOA fees, property taxes, mortgage insurance,
homeowners insurance) needs to be less than 31 percent of their gross income if you have a credit score lower than
620, and less than 46% with credit scores 620 or above.
• Borrowers’ back-end ratio (mortgage plus all your monthly debt, i.e., credit card payment, car payment, student
loans, etc.) needs to be less than 43 percent of their gross income if you have a credit score lower than 620, and
less than 57% with credit scores 620 or above.
• Borrowers must have a minimum credit score of 580 for maximum financing with a minimum down payment of 3.5
• At Bluecastle Lending, borrowers must have a minimum credit score of 550-579 for maximum LTV of 90 percent
with a minimum down payment of 10 percent.
• Typically borrowers must be two years out of bankruptcy. Exceptions can be made if you are out of bankruptcy for
more than one year if there were extenuating circumstances beyond your control that caused the bankruptcy and
you’ve managed your money in a responsible manner.
• Typically borrowers must be three years out of short sale or foreclosure. Exceptions can be made if there were
extenuating circumstances and you’ve improved your credit. If you were unable to sell your home because you had
to move to a new area, this does not qualify as an exception to the three-year foreclosure guideline.
• The property must meet certain minimum standards at appraisal. If the home you are purchasing does not meet
these standards and a seller will not agree to the required repairs, your only option is to pay for the required repairs
at closing (to be held in escrow until the repairs are complete).
FHA Loan Limits
The Federal Housing Authority sets maximum mortgage limits for FHA loans that vary by state and county. In
Broward, Dade and Palm Beach counties, you may be able to get financing for a loan size up to $345,000.00 with a
3.5 percent down payment. Conventional financing for loans that can be bought by Fannie Mae or Freddie Mac are
currently at $417,000 before it becomes a Jumbo loan.
How much are the Closing Costs on an FHA loan?
“I have read in several places on the web that it is possible to finance your closing costs into a FHA loan. However,
many of these sources are at least a couple of years old. Is this possible?”
Some of your FHA loan closing costs may be financed (like up front MIP), and some may--after being negotiated
between buyer and seller--be paid by the seller within the boundaries of the FHA loan program’s rules. The
borrower also has the option to pay some closing costs out of pocket, which in South Florida they typically are about
six percent of the gross selling price.
During the market recession when it was a buyer’s market, we used to get the seller to pay all of the closing costs.
Today in South Florida however, its a seller’s market and this could be very difficult to achieve. This is one of the
reasons we have the CCAP program.
FHA loan rules say there’s one thing a borrower cannot do with closing costs, regardless of how they are paid.
Closing costs can never be included as part of your minimum FHA loan down payment. Closing costs do NOT count
towards the minimum 3.5% down payment and are considered separate from the down payment. In Broward, Dade
and Palm Beach counties the typical cash a borrower needs to close on an FHA loan 30 year fixed is 9.5% of the
How Do You Get an FHA loan?
The process is simple. You call Bluecastle Lending and speak with Alex Baglioni. He will ask you a few preliminary
questions to make sure you are likely to qualify for a loan before even pulling credit or getting any personal
information. Typical questions before filling out a loan application are:
• Do you know what your credit score is?
• How much money do you have to buy a house?
• What price range are you considering?
• Have you had any short sale, foreclosure, BK, judgments or liens?
• Are you employed or self employed?
• If self employed, have you filed your 2015 and 2014 taxes?
FHA Loan Interest Rates
Bluecastle Lending interest rates are amongst the lowest mortgage rates in the country, and your 30 year fixed rate
will depend on how good your credit score is. The lender contribution could be applied to bring your interest rate
down (substantially), or to pay for your closing costs (substantially). Adjustable rate mortgages are also available
through FHA however, unless you are planning on living on the property a very short period of time, we do not
recommend it. The rates today are very low.
FEDERAL HOUSING ADMINISTRATION LOANS - FHA
How much cash do I need with the Closing Cost Assistance Program (CCAP)?
The below chart is an illustration of how much a borrower will approximately need as the total cash to close. This chart was created with the pricing and
interest rates on May 11th, 2016. The rate was 4% and the APR was 4.12%.
Purchase Price 580 Score 600 Score 620 Score 640 Score 660 Score 680 Score 700 Score 720 Score
$150,000.00 $8,962.50 $8,962.50 $8,056.50 $7,119.00 $6,931.50 $6,744.00 $6,744.00 $6,369.00
$200,000.00 $11,692.00 $11,692.00 $10,442.00 $9,192.00 $8,942.00 $8,692.00 $8,692.00 $8,192.00
$250,000.00 $14,615.00 $14,615.00 $13,052.50 $11,490.00 $11,177.50 $10,865.00 $10,865.00 $10,240.00
$300,000.00 $17,538.00 $17,538.00 $15,663.00 $13,788.00 $13,413.00 $13,038.00 $13,038.00 $12,288.00
$350,000.00 $20,286.00 $20,286.00 $18,098.50 $15,911.00 $15,473.50 $15,036.00 $15,036.00 $14,161.00
The average homebuyer in Florida takes 6.7 years to save 3.5% for the down payment; it would be prudent to take advantage while the program is still
being offered. For information on this program contact Bluecastle Lending at 954-866-0000, email alex@BluecastleLending.com
Bluecastle Lending is an Equal Opportunity Lender