When you take out an FHA Loan, though it is backed by the federal government, you’re not actually borrowing from the government. Instead, you’ll work with a private, FHA-approved lender.
Just like with a non-FHA 30 or 15-year fixed mortgage, you’ll need to make a down payment as well as regular monthly payments with an FHA Loan. You can choose from a variety of FHA loan types including 5-year adjustable-rate mortgages and fixed-rate mortgage with terms of 15, 20, 25, or 30 years.
The main differences with FHA loans relative to non-FHA loans are in the 1) qualification criteria and 2) terms of your loan, as outlined below:
1. Qualification criteria
FHA loans have less stringent qualification criteria. For example, generally, you’ll be able to qualify for an FHA loan even if you have a debt-to-income ratio that precludes you from qualifying for a non-FHA loan.
2. Terms of your loan
FHA loans are capped at a maximum amount that the FHA adjusts each year depending on the cost of living in your area. For example, in higher priced coastal areas such as Huntington Beach, FHA limits are set in excess of $700,000. In low-priced areas, such as the midwestern United States, you’ll find FHA limits as low as $200,000.
It’s also important to note that on an FHA loan, regardless of the exact type, you will always need to pay private mortgage insurance. The cost of that insurance will be added to your monthly payments.
