If you’re qualifying for a Federal Housing Administration (FHA) mortgage, your FHA loan approval is only one piece of the “FHA-approved” puzzle. You must meet FHA eligibility guidelines, of course, but your lender and appraiser must also be FHA approved. Even your home must meet FHA standards for approval. But once you, your new home, your lender and your appraiser all meet FHA guidelines, you can start packing boxes and getting a “welcome” mat to place at your new front door.
TL;DR (Too Long; Didn't Read)
"FHA approved" means that all components of the FHA home mortgage equation must meet FHA-approved guidelines including the borrower, lender, appraiser and even the property itself.
FHA Home Mortgage Overview
The FHA insures mortgages issued by FHA-approved lenders. These FHA loans are structured for borrowers who may not otherwise qualify for other types of mortgages including borrowers earning lower incomes and having lower credit scores. Although FHA loans are available for any qualifying borrower, they are especially suited to first-time homebuyers who have not yet built a robust credit history and traveled up the employment ladder to reach a high-income level.
FHA Borrower Requirements
The amount of down payment required of a borrower depends on the borrower’s credit score. In 2019, the minimum credit score allowed for an FHA-approved mortgage is 500, and a borrower must have a 10 percent down payment at this score. But if the borrower’s credit score is at least 580, the minimum required down payment drops to 3.5 percent. Down payment sources can come from a savings account, a cash gift from a family member or a down-payment assistance grant.
Because the FHA insures a lender against loss if a borrower defaults on the loan, the borrower must pay mortgage insurance premiums (MIP). These premiums cover two costs: an upfront mortgage insurance premium (UFMIP) and an annual MIP. The UFMIP typically is 1.75 percent of the base loan amount, and even though “upfront” is part of the acronym, this amount may be rolled into the loan unless a buyer chooses to pay it at closing. The annual MIP is assessed yearly, but a borrower may pay it in monthly installments at a rate between 0.45 to 1.05 percent of the base loan amount.
FHA sets limits for the maximum approved loan amounts, which are based on the geographical region where a property is located. For example, the maximum FHA loan that can be approved in 2019 for a single-family residence in
FHA-Approved Lenders and Appraisers
Only lenders that are FHA approved can underwrite and issue an FHA home loan, and only FHA-approved appraisers can appraise a property for an FHA home loan. You can find a list of FHA-approved lenders by visiting HUD.gov and using its lender search tool.
You’ll be able to search for an appraiser by name, location or license with this online tool. And since lenders use their own appraisers, you shouldn’t have to search for your own appraiser, but you can use HUD’s FHA-approved online appraiser search tool to confirm the credentials of your lender’s appraiser.
Your real estate agent or lender can point you in the direction of FHA-approved homes, but you can also use another one of HUD's online search tools to search for properties by location. Visit HUD.gov/HUDHomes and click on your state from the
Victoria Lee Blackstone was formerly with Freddie Mac’s mortgage acquisition department, where she funded multi-million-dollar loan pools for primary lending institutions, worked on a mortgage fraud task force and wrote the convertible ARM section of the company’s policies and procedures manual. Currently, Blackstone is a professional writer with expertise in the fields of mortgage, finance, budgeting and tax. She is the author of more than 2,000 published works for newspapers, magazines, online publications and individual clients.