FHA mortgages are home loans insured by the Federal Housing Administration. They have flexible lending standards to help:
- People whose house payments will be a big chunk of take-home pay.
- Borrowers with low credit scores.
- Homebuyers with small down payments and refinancers with little equity.
Two mortgage insurance premiums are required on all FHA loans:
- The upfront premium, which is paid at closing.
- The annual premium, which is rolled into each monthly payment for the life of the loan.
The upfront premium is 1.75% of the loan amount — $1,750 for a $100,000 loan. It can be financed as part of the loan amount.
The annual premium varies, based on the length of the loan, the amount borrowed and the initial loan-to-value ratio, or LTV.
Annual premiums for FHA loans:
- 15-year loan, down payment (or equity) of less than 10%: 0.7%.
- 15-year loan, down payment (or equity) of 10% or more: 0.45%.
- 30-year loan, down payment (or equity) of less than 5%: 0.85%.
- 30-year loan, down payment (or equity) of 5% or more: 0.8%.
For details about Federal Housing Administration-insured mortgages beyond just the premiums, see 7 crucial facts about FHA loans.