FHA Loans

How FHA Loans Work

At NEXA Mortgage we want to help you understand how a FHA mortgage loan works. In all actuality the Federal Housing Administration (FHA) doesn’t loan any money, they insure it. This means that you’re considered to be a less risky borrower than someone who might not have the backing of the federal government. Our role is to make sure that you qualify for an FHA mortgage and structure our loan to reflect it.

FHA Loan Benefits

FHA insured mortgages are some of the best kinds of mortgages available. This is because they can help more people into the home buying market. Check out the list below to understand some of the most basic benefits of an FHA mortgage.

Easier to Qualify for – because they’re backed by the federal government lenders are more likely to give you the kind of loan that you need.

Low Down Payment – FHA insured mortgages only require a 3.5% down-payment which makes it easier for people to own homes. Additionally the 3.5% can come in the form of gifts, unlike many other loan programs.

Lower Credit Borrowers Qualify – because FHA insured loans are backed by the government those with a poor credit history have an easier time getting this kind of loan.

Better Interest Rates – with the backing of the government these loans typically have a better interest rate than most traditional mortgage loans.

Better Home Stability – the FHA has programs designed to help homeowners keep their homes during hard times. The will work with you to help your home from falling into foreclosure. Always try to work out problems with your lender before the situation becomes dire.

FHA Loan Checklist

Employment Information

Past two years completed tax returns.
Past two years W-2's, 1099's and any other necessary tax forms.
One month worth of newest pay stubs.
Self-employed will need three years tax returns and YTD Profit & Loss Statement.

Savings Information

Past three months full bank statements for all accounts.
Any recent statements from investment accounts (retirement, 410k, mutual funds, etc.).

Personal Information

Driver's License or other official State identification.
Social Security Card.
Any Divorce, Palimony, Alimony Documents.
Green card or work-permit (if applicable).

FHA Loan Common Questions

General Questions

What is the FHA?

An FHA loan is a government-backed mortgage insured by the Federal Housing Administration, designed to help borrowers with lower credit scores and smaller down payments qualify for a home loan.

Who qualifies for an FHA loan?

FHA loans are available to U.S. citizens and eligible non-citizens who meet credit, income, and debt-to-income ratio (DTI) requirements. They are ideal for first-time homebuyers but can be used by repeat buyers as well.

What is the minimum credit score required for an FHA loan?

The FHA allows credit scores as low as 500 with a 10% down payment, but most lenders require at least a 580 score to qualify with just 3.5% down.

How much is the down payment for an FHA loan?

The minimum down payment for an FHA loan is 3.5% for borrowers with a credit score of 580 or higher. If your score is between 500-579, a 10% down payment is required.

Can I use gift funds for the down payment?

Yes, FHA allows 100% of the down payment and closing costs to come from gift funds, as long as they are from an approved source like family members, employers, or nonprofit organizations.

Loan Limits & Property Requirements

What are the FHA loan limits?

FHA loan limits vary by county and are updated annually. You can check current limits on the HUD website or consult a mortgage professional.

What types of properties can I buy with an FHA loan?

FHA loans can be used for primary residences, including single-family homes, condos (FHA-approved), manufactured homes, and multi-unit properties (up to four units).

Does the home have to meet certain requirements?

Yes, the home must meet FHA’s Minimum Property Standards, ensuring it is safe, sound, and secure. An FHA appraisal will be required to verify compliance.

Mortgage Insurance & Costs

Do FHA loans require mortgage insurance?

Yes, FHA loans require two types of mortgage insurance:

Upfront Mortgage Insurance Premium (UFMIP): Typically 1.75% of the loan amount, which can be rolled into the loan.

Annual Mortgage Insurance Premium (MIP): Paid monthly and ranges from 0.45% to 1.05%, depending on loan amount, term, and down payment.

Can FHA mortgage insurance be removed?

If you put down less than 10%, MIP is required for the life of the loan. If you put down 10% or more, MIP is removed after 11 years. You can also refinance into a conventional loan to remove MIP once you have 20% equity.

Income & Debt Considerations

What are the income requirements for an FHA loan?

FHA loans do not have specific income limits, but you must show stable employment and sufficient income to cover your mortgage payments and debts.

What is the maximum debt-to-income (DTI) ratio for an FHA loan?

Generally, FHA allows a DTI ratio of up to 43%, but in some cases, it can go up to 50% with strong compensating factors like a high credit score or substantial savings.

Refinancing & Special Programs

Can I refinance an FHA loan?

Yes, FHA offers several refinance options, including:

FHA Streamline Refinance: A low-doc, no-appraisal refinance for current FHA borrowers.

FHA Cash-Out Refinance: Allows borrowers to take cash out based on home equity.

Are there special FHA programs for first-time homebuyers?

While FHA loans are popular for first-time buyers, there are no exclusive FHA programs. However, FHA loans can be combined with down payment assistance (DPA) programs in many states.

Can I use an FHA loan for an investment property?

No, FHA loans are only for primary residences. However, you can buy a multi-unit property (up to four units) and live in one unit while renting out the others.

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The information provided on this website is for general informational purposes only and does not constitute financial, legal, or mortgage advice. FHA loan guidelines, eligibility requirements, and mortgage insurance rules are subject to change based on federal regulations and lender policies. Loan approval is not guaranteed and is subject to credit approval, verification of income and assets, and property eligibility. NEXA Mortgage is not acting on behalf of, or at the direction of, HUD/FHA or any government agency. Borrowers are encouraged to consult with a licensed mortgage professional to discuss their specific financial situation and loan options. For the most up-to-date FHA loan requirements and limits, please visit the U.S. Department of Housing and Urban Development (HUD) website.