FHA Mortgage Loan Standards for Lending-know before you go…
The FHA (Federal Housing Association) insures loans through lenders/banks, i.e. mortgage companies. This is helpful information if you are considering a mortgage loan insured by The Federal Housing Association. The information provided here is some changes and criteria for FHA Mortgage Loans For 2023.
FHA’s Role in Mortgage Lending
FHA does not actually originate the mortgage loan. Their role is like a partnership with the lender, which allows the lender to use FHA’s guidelines, and the government agency insures part of the loan in case of default.
FHA actions are the same in the mortgage industry as “the investors,” “Freddie” and “Fannie” do on conventional and some FHA loans. They have policies and procedures, which dictate how the loans are structured, with the programs and all stipulations for the property per their policies and regulations.
FHA Lenders
Lenders must be approved to work with FHA and meet certain criteria to do so. FHA has specific guidelines for origination, underwriting, and property. There is nothing simple but this is due to the government playing this role in creating a housing market for those within the low to moderate income bracket.
FHA was developed to help those individuals who could not afford conventional lending and serve as a source for moderate to lower-income individuals who otherwise would not know home ownership. Very similar to when the Subprime loan industry came into play, except the latter was a destruction to our country.
FHA VS SubPrime
The difference between FHA and Subprime is staggering as FHA has long since had stricter guidelines than Subprime and rightly needed since it is a government agency. However, the approval criterion is easier than conventional financing allowing more individuals to obtain home financing.
Mortgage Insurance
Mortgage insurance has always been a requirement but the down payment from the borrower’s own funds is flexible and doable for those without sufficient savings.
Seller-paid closing costs or contributions allowable are at 6% greater than the 3% of Conventional financing. The credit is more flexible to help younger applicants who have no credit or minimum credit to buy a home.
For Greater Details Please visit and read: The Ultimate Guide To FHA Loans
Maximum Loan Amounts For FHA Loan 2023
As you know, part of America has a low-cost area in mortgage lending. Some areas such as Hawaii, Alaska, Guam, and the Virgin Islands are high-cost areas and allow even higher loan amounts. These loan amounts are often referred to as non-conforming loan amounts.
FHA changed their maximum loan amount to include those borrowers who needed financing for a higher loan amount but did not have the five (5) percent down payment and needed the seller concession of six (6%). The aforementioned seller concessions have not changed. However, any cost greater than 6% would be an inducement to the sale price causing a reduction to the sale price.
By raising their maximum loan amount it helped a lot more borrowers who were not necessarily a credit risk but needed a higher loan amount.
National Conforming Loan Limits for 2023
- Low-Cost Area in the US: –
$472,030 – one-unit property
$604,400 – two-unit property
$730,525 – three-unit property
High-Cost Areas In the US-
$1,089,300 – one-unit property-
$1,394,775 – two-unit property
$1,685,850 – three-unit property
National Mortgage Limits Exceptions:
Special Exceptions for Alaska, Hawaii, Gram, and the Virgin Islands
$1,663,950 – one-unit property
$2,092,150 – two-unit property
$2,528,775 – three-unit property
$3,142800 – four-unit property
FHA Down Payment Requirements
A borrower must have a minimum required investment (MRI) – 3.5% of the adjusted sale price of the property is the borrower’s MRI. All of these funds must be adequately verified with the source of the funds.
With FHA you can get into a home with a 3.5% down payment and these funds can be from flexible sources, such as a gift, that will not have to be repaid.
Gifts may come from:
- a family member
- the borrower’s employer
- a close friend with a longer-term relationship which can be documented
- a charitable organization
- a government agency or public association that has programs to help homeownership applicants for low to moderate-income families or first-time homebuyers
The borrower’s MRI cannot come from the:
- seller of the property,
- any other person(s), or entity which may receive a financial benefit,
- any person(s) who would be refunded monies that had been given via seller or any other person named in the aforementioned.
Down Payment Requirements are a 3.5 percent down payment for those individuals with a credit score above 580, but those with poorer scores would be required to put down 10 percent for the down payment.
FHA’s Policy for MIP
What is MIP? MIP is FHA’s mortgage insurance premium that guarantees the loan in case of default.
Lenders are insured for possible losses on mortgage loans to:
- Finance a home purchase, proposed or under construction, or an existing one -to four-family dwelling or manufactured home.
- Refinance of existing home loan mortgage.
FHA requires an upfront mortgage insurance premium, which is added to the loan amount. When the loan-to-value is calculated, the upfront MIP should not be included in the appropriate LTV ratio.
The second requirement for MIP is the annual or monthly premium.
FHA asserts these calculations per the loan-to-value ratio and the term of the loan.
Mortgage Insurance premiums (Upfront MIP)
Calculation: for a loan with a base amount of $340,000 MIP = $5950 this added to your base loan amount after the calculation for the maximum financing will give you a total mortgage of $345950 TOTAL LOAN AMOUNT.
Upfront Mortgage Insurance Premiums
| Upfront MIP: 1.75 percent. | |
| Upfront MIP is the same across the board unless specified within the program guidelines for the product. | |
Annual or Monthly Mortgage Insurance Premiums-
| BASE LOAN AMOUNTS
30 yr. = loan amt equal to or less than $726,200 |
≤ 90.000% LTV | 50 basis points | Term= 11 yrs | |||
| 30 yr. Loans greater than $726,200 | >90.000% LTV but ≤ 95.000% | 50 basis points | Mortgage Term | |||
| 30 yr.=to or less than $726,200 | > 95.000% LTV | 55 basis points | Mortgage Term | |||
| Loan Amount > Greater than $726,200 | ||||||
| 30 yr. | ≤ 90.000% LTV | 70 basis points | 11 years | |||
| 30 yr. | > 90.000% but ≤ 95.000% | 70 basis points | Mortgage Term | |||
| 30 yr. | >95.000% | 75 basis points | Mortgage Term | |||
| Showing MIP | For 30 year loan | |||||
| **This could vary | in some cases | |||||
Credit Score
FHA requirements for FICO credit score 580 for a minimum down payment of 3.5%.
Some lenders may allow a score of 500 with a 10% down payment. My experience concludes that most Lenders will require a 620 to 640 score. The lower credit score is a high risk factor and most lenders do not want that kind of portfolio.
When you apply for a FHA loan, your entire financial status is evaluated most of the time, in an automated underwriting system just as it is with Conventional loans.
Some lenders do have manual underwriting guidelines. Thereby all of your credit, assets, employment, and income are analyzed by the system and the documentation is gathered and reviewed by an underwriter who is approved to underwrite loans for FHA.
One factor does not determine approval or denial normally- unless, of course, the credit is very unacceptable.
Seller Concessions Still 6%
FHA, 6% is the current level of seller concessions. know if this changes.
** Some lenders have their own guidelines regarding the lowest credit scores they will allow. They will not allow a credit score of 620-640+-. What is written above in the guidelines is FHA allowable. That does not mean that the lender will go by all of these pointers as in the final debate; they are liable for the loans they originate.
Certain standards apply not only to the credit on the credit report, how much credit you have etc., but to down payment, closing cost needed, income stability, and the entire ability to repay the mortgage loan. One cannot take one issue and determine if they will be eligible; it is a multiple effort of many processes of the loan application.
FHA guidelines have always been very extensive and detailed….
All investors changed credit criteria and the ability to repay the debt for applicants to protect themselves from financial loss. This also protects the applicant from making unwise decisions if not fully prepared for buying a home.
*Please note: Remember we have originated, underwritten mortgage loans. We focus on trying to give you the best and latest information available, however, rules and guidelines change frequently in mortgage lending, We will try to keep you up-to-date. You are welcome to email us with additional questions or concerns.
Additional References to FHA Loan Requirements
