United States
Hong KongFHA loans explained
FHA loans require 3.5 percent down at a credit score of 580 or above, and 10 percent between 500 and 579. They carry an upfront mortgage insurance premium and an annual premium, and the classic ratio benchmarks are 31 and 43 percent.
A government-insured program, not a government loan. The Federal Housing Administration insures the lender against loss; a private lender still makes the loan.
That distinction gets asked.
The down payment tiers
| Credit score | Minimum down payment |
|---|---|
| 580 or above | 3.5 percent |
| 500 to 579 | 10 percent |
Two tiers, two numbers, and questions that give you a score and ask for the down payment. Learn them as a pair.
Mortgage insurance
FHA charges two premiums: one upfront, and one annual figure collected monthly.
This is where FHA differs most from conventional lending. Borrower-paid private mortgage insurance on a conventional loan terminates automatically at 78 percent loan-to-value under the Homeowners Protection Act. FHA annual premiums do not follow that rule, and on many FHA loans they run for the life of the loan.
It is a Homeowners Protection Act rule about private mortgage insurance on conventional loans. Questions offer it as a distractor on FHA scenarios constantly.
Ratios
The classic FHA benchmarks are 31 percent housing and 43 percent total debt, against 28 and 36 for conventional.
They are benchmarks rather than hard cut-offs, and compensating factors can support more. But the numbers are what the exam asks for.
Who it suits
Borrowers with limited down payment funds or imperfect credit. The trade is the mortgage insurance cost, which over a long hold can exceed what a higher rate on a conventional loan would have cost.
Common questions
What is the FHA minimum down payment?
3.5 percent with a credit score of 580 or above, and 10 percent with a score between 500 and 579.
Does FHA mortgage insurance cancel at 78 percent?
No. That rule applies to borrower-paid private mortgage insurance on conventional loans. FHA annual premiums often run for the life of the loan.
What are the FHA ratio benchmarks?
31 percent housing and 43 percent total debt.
Does the FHA lend the money?
No. It insures a private lender against loss.
What mortgage insurance does FHA charge?
An upfront premium and an annual premium collected monthly.