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MORTGAGE KNOWLEDGE CENTER

PenFed Mortgage with Confidence

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image

FHA LOANS

Rates starting at % (APR %)¹

 

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

  1. Home
  2. Mortgage Knowledge Center
  3. What is an FHA Loan?

MORTGAGE

What is an FHA Loan?

EXPECTED READ TIME:4 MINUTES

Updated March 20, 2023

There are two main types of mortgages  — government-backed and non-government-backed. An FHA loan is a government-backed loan insured by the Federal Housing Administration and offered by approved lenders. Many first-time homebuyers can get into a home with an FHA mortgage. In this article, we will discuss purchasing a one-unit property like a single-family home, condo, or townhome. Read on to learn more.

FHA Loan Limits 2023

Every year the FHA comes out with lending limits. For 2023 the limits range from $472,030 to $1,089,300 depending upon the property's location. High-cost areas like San Francisco and Washington DC, of course, have higher limits. It's easy to search to see what the FHA mortgage limits are for the area you want to purchase in.

Compared to conventional loans, the FHA limits for the majority of the country are much lower. For example, for 2023, conventional loan limits range from $726,200 to $1,089,300 in high-cost areas. Although the high-cost areas have limits, most of the country for FHA loans can only go up to $472,030 You can see how the limits compare in this chart:  

One-Unit

In most of the country

For high-cost areas

FHA Lending Limits

$472,030

$1,089,300

Conventional Lending Limits

$726,200

$1,089,300

So that's the first thing to keep in mind with an FHA loan, make sure you're not looking at homes that exceed the lending limits.

FHA Interest Rate

Generally, the average FHA loan interest rate will be lower than the conventional rate under the same circumstances. For example — same loan size, credit score, down payment. When shopping for a loan, it's essential to compare your options. But, along with that lower interest rate comes mortgage insurance premiums (MIP), which are added to your monthly payment.

So, when you're comparing an FHA interest rate vs. a conventional interest rate, make sure to compare payments with that include the MIP.

We'll talk more about MIP below.

FHA Credit Score Requirements

One of the best things about an FHA loan is the credit score requirements are much lower. The lowest credit score the FHA will insure a loan for is 500. But that doesn't mean the lender will accept a score of 500.

Many lenders have their credit requirements which include a score of 620 or more. It's crucial to find out what score you'll need for the lender you're going to. If your score is lower than 620, it's worth taking the time to work on your credit to raise your score.

FHA is also more lenient on derogatory credit or credit events such as bankruptcy or foreclosure than conventional loans. But, since this is a government-backed loan you can't have delinquent or charged-off student loans or other government loans like an FHA, VA, or USDA mortgage. Your federal taxes also have to be current.

FHA Minimum Down Payment

The lowest down payment you can have for an FHA loan is 3.5% of the purchase price. So, if you're buying a house that's $300,000 — you'll need $10,500. But you have to have a score of 580 or higher.

If your score is between 500 to 579, you'll need to put down a higher down payment of 10% of the purchase price. For a $300,000 home, you'd need $30,000. That's quite a big difference, so it does pay to work on your credit to get your score as high as possible.

Another advantage of an FHA loan is that the down payment can be a gift from a family member, employer, or charity.

One thing to note is that the FHA has mortgage insurance premiums no matter how much you put down. Whereas if you put down 20% on a conventional loan you won't have any.

How much is the FHA mortgage insurance?

You may have heard about private mortgage insurance (PMI). For an FHA loan, they call it mortgage insurance premium (MIP). This insurance protects the lender — not the borrower. The annual MIP amount can range between 0.15% to 0.75% of your loan. For a $300,000 loan — it can add a few hundred dollars per month to your payment.

FHA mortgage insurance lasts for 11 years or the life of the loan, depending on how much you put down. In contrast, there is no PMI on a conventional loan with 20% down. Also, once you have 20% equity on a conventional loan, you can ask the lender to remove this extra insurance. But, qualifying for a conventional loan is harder than an FHA. No matter what you choose, it's always good to weigh all of your options.

FHA mortgages are a way to get a borrower into their first home. And even if you're not a first-time homeowner, you can still get an FHA loan. And with rates being so low, buying a home is more possible than ever before.

For more information about PenFed Mortgages:
 

PenFed Mortgage: 

800-970-7766

Get Started

SIMILAR ARTICLES

VA Loan Compared to a Conventional Loan

Discover what the difference between a VA loan and a conventional loan is. Answer the question of if a VA loan is better than a conventional loan.
couple researching va and conventional loans

What Are the Different Types of Mortgages?

There are different types of mortgages for all financial situations. PenFed Credit Union provides details on different mortgages and which might be right for you.
couple researching on laptop together

What Is a Jumbo Loan?

What is a jumbo loan and why would I need one? PenFed Credit Union explains everything you need to know about jumbo loans and how to get one.
single-family houses in a row in a neighborhood

What Is a Conforming Loan?

A conforming loan is based on guidelines set by government sponsored entities. It is important to understand what a conforming loan is and its differences from other mortgage loans.
people discussing over mortgage papers
image

FHA LOANS

Rates starting at % (APR %)¹

 

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

Home Buying Steps

  • Getting Started
  • Finding a Home
  • Getting a Mortgage
  • Home Ownership

Mortgage Topics

  • VA Loans
  • Conventional Loans
  • First Time Homebuyer
  • Home Equity
  • Homebuying 101
  • Checklists
  • Adjustable Rate Mortgages
  • PenFed Top 10
  • Refinance
  • Jumbo Loans
  • FHA
  • Videos

Mortgage Products

  • Mortgage Center
  • Refinancing
  • Home Equity

PenFed HELOC

Rates as Low as % APR* with flexible use of funds

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

Disclosures

1Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on discount point, which equals percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 96.5%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.

*Prime Rate is % as of . The APR for this Home Equity Line of Credit (HELOC) is based on prime plus a margin and can change monthly. Fixed Rate Advances will be amortized over the Fixed Rate Advance Term, with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin, and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than % for primary residences and second homes.

  • Annual Fee: Notwithstanding the foregoing, an annual fee of $99 will be assessed on each account anniversary.
  • Home equity lines of credit (HELOC) are variable rate loans and the interest rate is subject to increase after consummation of the loan on monthly basis. Closing costs range between $500 and $8,500 for credit lines of $500,000. Contact a representative for additional details.

Appraisals: PenFed will attempt to establish value via an independent method. If that method is unsuccessful, or the value is not sufficient for the amount requested, an appraisal will be required regardless of CLTV. An appraisal is always required in the following circumstances:

For all loans with a loan amount greater than $400,000.

If an appraisal is required, it must be ordered by PenFed. You will be contacted for authorization and payment prior to ordering. Appraisal fees average $550 to $850 (some run higher).

  • Closing Cost Credit: PenFed will pay most closing costs associated with a home equity line of credit (HELOC), which includes credit report, flood certification, settlement/closing, property ownership and encumbrances search, recording, property search, and quick close. Member is responsible for any city, county, and/or state taxes if the subject property is located in FL, LA, MD, MN, NY, TN, or VA. If an appraisal is required, the member, who is responsible for the fee whether or not the loan closes, will pay the cost.

Interest may be tax deductible, consult a tax advisor for further information regarding the tax deductibility of interest and charges.

Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Advance Period. During your Advance Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.

Fixed Rate Advances will be amortized over the Fixed Rate Advance Term with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than % for primary residences and second homes and 4.75% for investment properties.

Property Insurance: Property insurance is required.

Multiple PenFed Loans: Multiple PenFed Equity loans and HELOCs are available as long as the member and collateral qualify (except Texas). For Equity loans and HELOCs the total indebtedness cannot exceed $500,000 for all PenFed Equity and HELOCs combined.

PenFed does not lend on:

  • Mobile homes
  • Co-ops or time-shares
  • Properties that are currently listed on the market for sale
  • Commercial property or property used for commercial purposes, even if a residence is part of the property
  • Undeveloped property (land only)
  • Properties with more than 4 units

Properties that are currently under major construction/renovations: Property must be fully livable, with no safety issues. (Examples: no missing rails from stairs/decks, no open walls with wires showing, missing kitchen appliances/counters, missing bath fixtures or unfinished pool).

  • Additional limitations may apply

Home Equity Line of Credit:

  • This Account has a Draw Period of 10 years, followed by a repayment period of 20 years.
  • If only minimum payments are made during the draw period, the loan balance will not decrease.
  • In Texas, the maximum CLTV available is 80% on owner occupied properties. Additional restrictions apply in Texas, so please ask a representative for details.
  • In all other states, the maximum CLTV is 85% on owner occupied properties and second homes. Additional restrictions or requirements may apply based on application characteristics.
  • Property type of Condo has a maximum CLTV of 80%.
  • The maximum CLTV available is dependent on credit qualification.
  • Rates vary depending on owner occupancy and CLTV and other loan criteria.

Minimum Loan Amount Requirements in all States:

  • For an owner occupied property or second home the minimum loan amount is $25,000 and the maximum amount is $500,000 with a CLTV of 85% or less of the fair market value.

Other terms and conditions apply; call 844-918-4307 to speak with a representative for details. All rates and offers are subject to change without notice. To receive advertised product, you must become a member of PenFed.

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This credit union is federally insured by the National Credit Union Administration. Rates are current as of September 2023 unless otherwise noted and are subject to change.

APY = Annual Percentage Yield
APR = Annual Percentage Rate


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IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party Website that is not a part of Pentagon Federal Credit Union.


The content you are about to view is produced by a third party unaffiliated to Pentagon Federal Credit Union. PenFed takes no responsibility for the content of the page.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party site. PenFed Realty, LLC is wholly owned by PenFed and this referral may provide PenFed a financial or other benefit.


For more information about the relationship between PenFed and PenFed Realty, LLC, see the Affiliate Business Arrangement Disclosure.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party Website.


The content you are about to view is produced by a third party website that is unaffiliated to Pentagon Federal Credit Union. PenFed takes no responsibility for the content of the page.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party site. PenFed Title, LLC is wholly owned by PenFed and this referral may provide PenFed a financial or other benefit.


For more information about the relationship between PenFed and PenFed Title, LLC, see the Affiliate Business Arrangement Disclosure.


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