Disclaimer: Citi may have different eligibility criteria and/or product offerings than those mentioned on mortgage.com.

This is a type of mortgage that is backed by the Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development. One of the coolest things about an FHA loan is that it's kind of a helping hand for folks who might not have the perfect credit score or the biggest pile of cash for a down payment.

So, why consider an FHA loan? Well, if this is your first time buying a home or you've hit a few bumps financially in the past, this might be just what you need. Since the government insures these loans, mortgage lenders are a little more lenient on the credit score and down payment expectations. That means you could get into your new home sooner than you think!

FHA loans can be helpful if you’re juggling some debt, or if you’re rebuilding your credit history. They’re also more forgiving of financial hiccups, sometimes even bankruptcy, making them a lifesaver for many homebuyers. In terms of how it works, the FHA doesn't actually hand out the money for the loans directly to you. If you default on mortgage payments, the FHA will help reimburse your mortgage lender. This is done through what's called mortgage insurance. Because of this safety net, mortgage lenders feel a lot more comfortable lending to a wider range of people. This does add to the overall cost of the loan, so you'll want to factor that into your budget for buying a home.

Let’s dive into some of the key details like loan limits, interest rates and what you’ll need for a down payment. We’ll walk you through everything so you can see how an FHA loan might fit into your home buying plans.

FHA loan down payment

One of the biggest perks of an FHA loan is the low down payment requirement. You can get away with putting down as little as 3.5% of the home's purchase price if your credit score is 580 or higher. If your credit score is between 500 and 579, you’ll need to put down at least 10%. The bonus benefit of an FHA loan is that they’re pretty flexible about where your down payment comes from. It can be from your savings, a cash gift from a family member, or a grant from a state or local government down payment assistance program. Some lenders, like Citi, may have stricter credit score requirements.     

FHA loan limits

The FHA does put a limit on how much you can borrow, but this shouldn’t put a damper on your hunt for the perfect home. FHA loan limits are updated every year to match the real estate market and living costs in different areas. Caps are even higher in places with pricey real estate.

So, whether you’re looking in a bustling city or a quiet suburb, loan limits are designed to reflect what’s typical for your region, helping to boost your buying power. This keeps FHA loans within reach, no matter the economic climate or where you’re looking to settle.

FHA interest rates

Nobody enjoys paying interest, so you’ll be happy to 
hear that FHA loans usually come with competitive rates compared to conventional loans because they’re backed by the government.

Keep in mind, though, that the exact rate can vary based on your credit score and the loan amount you’re going for as well as other factors (not to mention your lender’s requirements and market conditions). If you’re curious how these factors might play out for you, your lender is the go-to person for answers. They’ll provide a clear picture of what to expect and help you navigate your options.

FHA mortgage insurance

FHA loans come with a couple of mortgage insurance requirements: there's an upfront premium of 1.75% of your loan amount, which you can pay when you close or just add it to your mortgage, and then there's a yearly premium that ranges from 0.45% to 1.05% of your loan balance, divided into monthly payments. The length of time you'll need to pay the annual premium depends mostly on your initial down payment and loan term. If your down payment is less than 10%, you'll be paying 
this premium for the entire life of the loan.

While this does add to the overall cost of your loan, it's also what makes FHA loans accessible to those who might not have a huge down payment or great credit. Just keep in mind that you can't cancel these premiums unless you refinance into a different type of loan, which might be a good move down the road once you've built up enough equity in your home.

FHA loan credit score

With FHA loans, if your credit score is at least 500, you're in the housing game with a 10% down payment. Bump that score up to 580 or more, and you can drop your down payment to just 3.5%. It's a pretty cool perk, especially if you're buying your first home or trying to keep your budget in check. But here's an even sweeter deal: the FHA also allows for no credit score, and your lender will work with you to put together a non-traditional credit report to help you qualify for this loan.

FHA home loan DTI

Breathe a sigh of relief: the debt-to-income ratio (DTI) for FHA loans is more forgiving than for conventional loans, typically maxing out at about 43%. This gives a bit of wiggle room to your monthly budget, which makes easing into homeownership that much more doable. If you’re carrying some extra debt—like most of the country—an FHA loan can remove roadblocks to ownership so you can put out that welcome mat even sooner than expected.

FHA income requirements

There’s no high- or low-income requirement with FHA loans. You’ll just have to show that your income is stable and that you’re able to cover expenses.

Ready to start the mortgage application process? Applying for an FHA loan is fairly simple and starts with choosing an FHA-approved lender, like Citi. You’ll then gather financial documents, such as income verification and credit reports, which your lender will use to assess your financial health.

Once you have found a property you are interested in purchasing, the next step is to fill out the loan application. This application is a crucial part of the home buying process as it provides your lender with all the necessary information to determine if you qualify for a loan.

Your lender will guide you through this process, explaining all the necessary steps along the way. This includes the appraisal stage, where a professional appraiser will assess the value of the property to ensure it meets FHA standards. The underwriting stage is also important, as this is where your lender will thoroughly review your finances to ensure you are capable of making mortgage payments.

The goal of this process is to ensure that both the property and your finances are in order before finalizing the loan. By following these steps, you can feel confident that you are making a sound investment and that you are well-prepared for the responsibilities of homeownership.

Ready to explore your options?