Keep in mind that part of FHA’s mission is to help those who desire a home to purchase one, and to that end FHA is fairly aggressive when it comes to loan approval (subject to make-sense underwriting guidelines). Since FHA loans are government insured, the guidelines aren’t as strict as they are for Conventional loans. In addition, the closing costs and down payment requirements are relatively low.

With an FHA loan, your down payment can be as low as 3.5% of the purchase price, assuming you have at least a 580 credit score.  In fact, gift funds can be used for 100% of the borrower’s closing costs and down payment (if the 3.5% is gifted by an acceptable donor, it’s effectively zero down for the borrower). In other words, you don’t need much cash to close.

The maximum FHA loan amounts (national loan limit ceiling) for one-unit properties range from $271,050 to $625,500, with the exception of some Hawaiian counties that go as high as $721,050.  Additionally, the loan limits are higher for 2-4 unit properties nationwide.

There are other counties that have a max loan amount in between the floor and ceiling, such as here in San Diego, CA, where the max is set at $546,250.  Check your county FHA loan limits to determine the maximum loan amount.

Upfront Mortgage Insurance – FHA loans have a hefty upfront mortgage insurance premium equal to 1.75% of the loan amount. This is typically bundled into the loan amount and paid off throughout the life of the loan.

For example, if you were to purchase a $100,000 property and put down the minimum 3.5%, you’d be subject to an upfront MIP of $1,688.75, which would be added to the $96,500 base loan amount, creating a total loan amount of $98,188.75.

However, your LTV would still be considered 96.5%, despite the addition of the upfront MIP.

Annual Mortgage Insurance – Borrowers must also pay an annual mortgage insurance premium (paid monthly) if you take out an FHA loan, which varies based on the attributes of the loan.