FHA Purchase Loans

A mortgage insurance premium (MIP) is a required fee for FHA loans that protects the lender in case the borrower defaults on the loan. MIP is different from the private mortgage insurance (PMI) sometimes required for a conventional loan, as FHA loans include both an upfront mortgage insurance fee and a monthly mortgage insurance payment, whereas conventional loans don’t require an upfront fee (and the monthly fee can eventually be removed once the loan-to-value (LTV) reaches 80% or less for loans in good standing). MIP on an FHA loan either lasts 11 years (if your down payment is 10% or more) or is required for the entire loan term (if you put down less than 10% of the home’s value).

An FHA loan is a great mortgage option for many first-time homebuyers or anyone who is looking for an affordable loan without having to make a large down payment. While other loans may offer similar flexibility on down payments, FHA loans allow for a wider range of income profiles and debt ratios.

Tip: If you already have an FHA loan and want an easy way to reduce your monthly payments, see if you qualify for FHA Streamline Refinancing.

The eligibility requirements for an FHA loan are relatively simple. For starters, FHA loans through Pennymac require a minimum FICO score of 580. FHA loans also require you to occupy the property you are purchasing and to verify your employment history. In the case that you have experienced prior hardships as a homeowner, FHA requires you to be two years out of bankruptcy and three years out of foreclosure, with a few exceptions. Your property must also meet the FHA guidelines at inspection, with the seller agreeing to make any necessary repairs prior to closing.

Yes, you can refinance your FHA loan into any other loan type you qualify for. One unique option FHA loans are eligible for is a refinancing program called streamline refinancing, which is a significantly easier way to refinance your home. With a streamline refinance, you can take advantage of better rates with an expedited process that requires less documentation and allows for a quicker closing of the loan. An FHA streamline refinance also allows you to switch from an adjustable-rate loan to a fixed-rate mortgage.

Borrowers often refinance into a conventional loan after building equity in their homes with an FHA loan. Transitioning to a conventional loan can save you substantially each month by eliminating your MIP (mortgage insurance premium).

FHA loans can be used for a wide variety of owner-occupied properties. You may use these types of loans to purchase properties ranging from typical suburban single family homes to condos. You can even use an FHA loan to buy a multi-unit property with up to four units. Keep in mind that some lenders won’t lend for all types of properties allowed by the FHA, so ask your lender about their specific restrictions before you get too far into the process.