PenFed Mortgage with Confidence


FHA FAQs – What You Need to Know

What you'll learn: The most common FHA questions including the benefits, requirements, and costs to be aware of.


The dream of buying a home can become a reality for many thanks to the Federal Housing Association (FHA) home loan program. This government-backed mortgage option is well-suited for first-time homebuyers and those with limited financial means, but it comes with questions. Let’s walk through some of the most common FHA questions relating to limits and eligibility.

How do I know if I’m eligible for an FHA loan?

Your lender will work with you to ensure you meet the minimum FHA requirements. These include:

  • Minimum credit score of 500, but often 620 depending on the lender
  • Down payment of at least 3.5 percent
  • Mortgage payment to gross income ratio of 31 percent or less
  • Debt to income (DTI) ratio of 43 percent or less
  • Owner occupies the property as a primary residence
  • Minimum property requirements are met

Eligibility will be based on the FHA guidelines and requirements from your lender. Be sure to shop around and choose a trusted lender, such as a credit union.

What are the FHA mortgage loan limits in my area?

FHA loans have limits that are updated annually and vary based on where the property is located. Limits are influenced by the conventional loan limits set by Fannie Mae and Freddie Mac. In 2022, the single-family maximum FHA lending amount ranged from $420,680 to $970,800. Find the FHA lending limits in your area via the search tool on the U.S. Department of Housing and Urban Development (HUD) website.

If you’re considering an FHA loan to buy a home, be sure to know your area’s limit before starting your search. Tell your real estate agent so they can show only properties that meet your guidelines and help you work with the seller.

How do FHA limits change based on property type?

In addition to single-family homes, FHA loans can be used to buy condos, duplexes, triplexes, and fourplexes – so long as they meet the property guidelines. Multifamily properties have a different set of requirements and loan limits. You will likely need experience as a landlord to qualify for a multi-unit property FHA loan.

Here is a breakdown based on the 2022 limits. Search for your area to get an accurate limit.

  2-Unit Property 3-Unit Property 4-Unit Property
Low-Cost Area $538,650 $651,050 $809,150
High-Cost Area $1,243,050 $809,151 - $1,867,274 $1,867,275

How much FHA mortgage insurance will I pay?

Mortgage insurance protects lenders against loss if a borrower defaults on their loan. A conventional mortgage requires private mortgage insurance (PMI) for down payments of less than 20 percent. FHA loans have a different version called mortgage insurance premium (MIP) – except it remains for the life of the loan. The only way to get rid of MIP is to refinance into a conventional loan once you reach 20% equity or, if you made a down payment of 10% or more, MIP will fall off after 11 years.

There are two types of MIP:

  1. Up Front Mortgage Insurance Premium (UFMIP) – Upon closing on an FHA loan, there is an upfront mortgage insurance premium of 1.75 percent of the loan amount. This can be rolled into the loan or paid as a closing cost.
  2. FHA Monthly Insurance Premium (MIP) – There is also an annual MIP that can range from 0.45 percent to 1.05 percent depending on your loan parameters. This is usually split into monthly installments as part of your mortgage payment.

It’s a pretty common misconception that MIP makes FHA loans less affordable. In reality, MIP is what makes homebuying affordable for those with limited savings or unfavorable credit history. Just be sure to compare options and run the numbers with your lender so you know all of the costs ahead of time.

How much are FHA loan closing costs?

Every mortgage includes closing costs to cover fees and prepaid costs (like interest and insurance) associated with the loan. These can fall into three categories:

  1. Lender Fees – including underwriting, loan processing, and origination
  2. Third-Party Fees – such as home appraisal and title services
  3. Mortgage Insurance Premium (MIP) – refer to the previous question

Normally, closing costs can run two to five percent of the purchase price. That can mean $15,000 on a $300,000 loan – which can sound like a lot, especially if it will be paid upfront.

Fortunately, the FHA places limits on closing costs and offers creative options to avoid a large payment at closing time. These include:

  • Seller-Paid Closing Costs – You may be able to negotiate for the seller to pay up to 6 percent of the home sale price.
  • Lender Credits – Your lender will pay some of your closing costs in exchange for a higher interest rate.
  • Closing Costs Assistance – Low-income down payment assistance programs are available in most states. Research programs in your area to see what may be available, and ensure your lender is willing to work with them.
  • Roll Closing Costs into the Loan – This won’t change what you pay overall, but it will lower the upfront costs. Instead of paying at closing, your closing costs will be spread across your monthly mortgage payments.

How soon after a bankruptcy am I eligible for an FHA mortgage?

Bankruptcies and foreclosures can make it challenging to get a mortgage. With a conventional loan, you usually have to wait four years after a bankruptcy and seven years after a foreclosure to become eligible for a new mortgage. The FHA is more lenient. The waiting period is shortened to two years after bankruptcy and three years after foreclosure. That’s great news for borrowers determined to turn around their finances after a major credit event.

The right choice for you

With so many factors at play, you’ll no doubt have additional questions throughout your homebuying journey.

PenFed PenFed, Inc FREE - On Google Play