Whether youre a first-time homebuyer, moving to a new home, or want to refinance your existing conventional or FHA mortgage, the FHA loan program will let you purchase a home with a low down payment and flexible guidelines.580 Credit Score- and only -3.5% Down RELATED ARTICLES
FHA loan limits were established to define how much you can borrow for a HUD-backed mortgage. Each state has different limits, so be sure to look up your state to understand what is available for your FHA home loan.
For , the FHA floor was set at $498,257 for single-family home loans. This minimum lending amount covers most U.S. counties. The FHA ceiling represents the maximum loan amount and is illustrated in the table below.
Also for 2024, the FHA ceiling was set at $1,149,825 for single-family home loans. This represents the highest amount that a borrower can get through the FHA loan program. It applies to high cost areas in the United States and is illustrated in the table below.
Paying the upfront costs of buying a new home can be challenging. To help overcome this hurdle, many local and state agencies offer down payment assistance in the form of grants or second mortgages.
Buying your first home is always an exciting milestone, but it can also be intimidating and challenging, especially when it comes to financing. Many first-time buyers have not built up a large down payment or established strong credit yet. This is where FHA loans can make a huge difference by offering low down payment options, flexible credit requirements, and favorable rates.
While FHA loans have become a go-to solution for first-time homebuyers, it’s a common misconception that they are exclusively for new buyers. In reality, repeat and even experienced homebuyers can qualify for and benefit from an FHA loan
In this comprehensive guide, we’ll clear up who can use FHA financing, why it remains an excellent choice for first-timers and how repeat buyers can also tap into its advantages.
FHA Loan Basics
First, let’s review what FHA loans are and how they work. FHA stands for Federal Housing Administration – this government agency insures the loans so lenders offer more flexible terms.
Some key highlights:
-
Requires just 3.5% down payment from borrowers
-
Minimum credit score of 500-580
-
Higher debt-to-income ratios allowed
-
Loans for primary residences only
-
Both first-time and repeat buyers eligible
FHA insurance protects the lender from losses if the borrower defaults. In exchange, homebuyers get approved with lower credit scores, smaller down payments, and higher existing debts than conventional loans allow.
Why First-Timers Love FHA Loans
There are many reasons FHA loans are so popular with first-time home buyers:
Low Down Payment
The ability to buy with as little as 3.5% down makes homeownership more attainable for first-timers who haven’t had years to accumulate a 20% down payment. Coming up with 3.5% is much easier.
Forgiving Credit Requirements
First-time buyers often have limited credit history and lower scores. FHA allows scores as low as 500-580, whereas conventional loans generally require 620+.
Gift Funds Allowed
Borrowers can use gifts from relatives or non-profits to pay the 3.5% down payment. This gives added flexibility.
Smaller Reserves Needed
Conventional loans often require 6-12 months reserves after closing. FHA only asks for 1-2 months reserves.
No First-Time Home Buyer Programs Needed
The low down payment and flexible credit requirements of FHA loans eliminate the need to use state/local down payment assistance programs targeted to first-time buyers.
Competitive Rates
FHA loan rates are very close to conventional loan rates for borrowers with the same credit profile. And they usually beat subprime rates.
Low Monthly Mortgage Insurance
First-timers can get an FHA loan with monthly mortgage insurance as low as 0.45% with 10% down. Conventional loans require 20% down to avoid mortgage insurance.
Buy With a Higher DTI
FHA allows total debt ratios up to 50% in some cases. This allows first-timers to buy while still paying off student loans and other debts.
No Prepayment Penalties
First-timers who later want to refinance or move can pay off their FHA loan anytime without penalty.
FHA Loans Work for Repeat Buyers Too
FHA financing is not limited to first-timers only. Repeat buyers face financial constraints too. Situations where an FHA loan may benefit include:
- Needing a low down payment on a new higher-priced home
- Relocating to a high-cost area
- Going through divorce or financial struggles
- Building back credit after a short sale or foreclosure
- Current home no longer meets needs of growing family
Repeat buyers have mortgage shopping options too. They can choose FHA or a conventional loan. Here’s a brief comparison:
FHA Loan | Conventional Loan |
---|---|
3.5% downpayment | Typically 10-20% down |
500+ credit score | 620+ credit score |
Up to 50% DTI | Up to 45% DTI |
Monthly mortgage insurance | Mortgage insurance with <20% down |
Primary residence only | Second homes and investment OK |
The best loan type depends on your financial specifics – down payment size, credit scores, existing debts, and more. But it’s good to know repeat buyers can consider both FHA and conventional loans.
Pros of Choosing an FHA Loan
We’ve covered the key benefits of FHA loans for first-timers. But repeat buyers can take advantage of these same perks:
Low Down Payments
Only need 3.5% down rather than 20% for conventional loans. This frees up cash for other uses.
Move With Better Rates
Buyers with lower credit scores get better rates with an FHA loan versus a subprime conventional loan.
Buy Now, Build Equity & Improve Credit
Repeat buyers have a chance to build home equity and continue improving their credit profile with on-time mortgage payments under an FHA loan.
Refinance Easily Later
FHA streamline refinances allow existing FHA mortgage holders to refinance easily into a new lower rate.
Pay Off Mortgage Insurance Sooner
Repeat buyers with 10%+ down see FHA mortgage insurance drop off their loan after 11 years.
Keep More Savings
The smaller required reserves mean you can put less money towards reserves and more towards your down payment.
Move Up Sooner
Repeat buyers can purchase again sooner rather than wait years to accumulate 20% for a conventional loan.
Cons to Weigh
FHA borrowers do pay mortgage insurance premiums. And repeat buyers with 20% down and strong credit may get lower rates with conventional financing. Some other potential drawbacks:
-
Monthly mortgage insurance premiums
-
Upfront mortgage insurance premium (can be rolled into loan amount)
-
Must be owner-occupied as primary residence
-
New appraisal required even when streamline refinancing
-
More repairs may be required by appraiser
-
Lower loan limits in lower-cost areas
-
Possibly higher interest rates than conventional loans for borrowers with excellent credit
So in certain cases, repeat buyers are better off with a conventional loan. But for many, FHA remains the more affordable option.
Tips for Shopping FHA Loans
Whether you’re a first-timer or repeat buyer considering an FHA loan, keep these tips in mind:
-
Check loan limits in your county – high-cost areas have higher caps
-
Compare quotes from multiple lenders – FHA rates vary
-
Lock in your rate quickly when shopping in a rising rate environment
-
Ask about upfront mortgage insurance and monthly premiums
-
Inquire about streamline refinance options for the future
-
Research rules in your state regarding home equity loans/lines
-
Make sure the home qualifies – have your agent review the minimum property standards and HOA approval
-
Read up on FHA appraisal guidelines – plumbing, electrical, roofing, etc.
-
Be ready to move fast with a pre-approval once your offer is accepted
-
Ask for seller-paid closing cost assistance to keep more cash in your pocket
Whether this is your first or fifth time buying a home, an FHA loan can offer a great opportunity to get into your dream house sooner with less cash down and more affordable payments. Just be sure to shop around for your best rate and understand both the benefits and costs in your specific situation.
Alternatives Beyond FHA Loans
FHA loans serve an excellent purpose, but we would be remiss not to mention some other options both first-timers and repeat buyers may want to consider:
Conventional 97 – Allows 3% down payment on conventional loan with private mortgage insurance
HomeReady/HomePossible – Fannie Mae and Freddie Mac 3% down programs with income limits
VA Loans – Zero down payment option for qualifying veterans and service members
USDA Loans – 100% financing for low-income buyers in rural designated areas
Down payment assistance programs – First-time buyer programs offering grants for down payment and closing costs
Bridge loans – Short-term financing option allowing you to buy before selling current house
80/10/10 piggyback loans – Primary mortgage + secondary HELOC or loan to cover down payment
Seller financing – Seller provides financing so buyer avoids bank qualification process
Shared equity programs – Programs where the city/county/non-profit co-invests in the home purchase
The more options you look at, the better chance you have of finding the optimal loan program or creative solution that fits your budget and homeownership goals.
Ready to Make Your Dream of Homeownership a Reality?
Hopefully this guide provided a comprehensive overview explaining that FHA loans
Learn About FHA Loans
Find out why FHA mortgages with low down payments are so popular with homebuyers.
FHA Loan Programs for 2024
The most recognized 3.5% down payment mortgage in the country. Affordable payments w/good credit.
NEW FHA Income Requirements 2024 – First Time Home Buyer – FHA Loan 2024
FAQ
Can you only use FHA for your first home?
What disqualifies you from an FHA loan?
Can you get an FHA loan twice?
Who is an FHA mortgage only available to?