FHA
What Realtors Actually Need to Know
FHA loans are government-insured mortgages designed to make homeownership more accessible—particularly for buyers with smaller down payments, limited savings, or less-than-perfect credit.
They aren't just for first-time homebuyers.
🏠 HOW MUCH DOES THE BUYER NEED DOWN?
3.5% Down
• Available with a 580+ qualifying credit score under FHA guidelines
• The buyer does NOT have to be a first-time homebuyer
• FHA financing is generally for a primary residence
Below 580 Credit
FHA guidelines may allow financing with a larger down payment, but lender requirements can vary significantly.
💡 REALTOR TAKEAWAY → FHA isn't simply a "first-time homebuyer loan." It can be a strong option for repeat buyers too—especially when credit or cash-to-close makes Conventional financing less attractive.
💰 WHAT ABOUT MORTGAGE INSURANCE?
FHA financing generally includes two forms of mortgage insurance:
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Upfront Mortgage Insurance Premium (UFMIP): Currently 1.75% of the base loan amount and is typically financed into the mortgage.
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Annual Mortgage Insurance Premium (MIP): Paid monthly as part of the buyer's mortgage payment.
For many common FHA loans with less than 10% down, annual mortgage insurance generally remains for the life of the loan.
With 10% or more down, it may be removed after the applicable FHA mortgage insurance period.
💡 REALTOR TAKEAWAY → Don't compare FHA and Conventional based on interest rate alone. Mortgage insurance can materially change the buyer's total monthly payment.
📊 DOES MY BUYER NEED PERFECT CREDIT?
No—and this is one of FHA's biggest strengths. FHA can often be more forgiving for buyers with lower credit scores or previous credit challenges.
That doesn't automatically mean FHA is the better option, though. Depending on the buyer's credit, down payment, and overall profile, we should compare FHA vs. Conventional side-by-side.
💡 REALTOR TAKEAWAY → Don't assume a buyer with a lower credit score can't purchase a home. Get me involved before ruling them out.
💳 WHAT ABOUT DEBT-TO-INCOME?
FHA can sometimes accommodate higher debt-to-income ratios than buyers expect. There isn't one DTI number that tells us whether every FHA borrower will qualify. Automated underwriting evaluates the buyer's complete financial profile.
That includes factors such as:
• Credit history
• Income
• Assets and reserves
• Existing monthly debts
• Overall loan structure
⚠️ WATCH OUT → Just like Conventional financing, taking on new debt during the transaction can change the buyer's qualification.
💡 REALTOR TAKEAWAY → Don't disqualify a buyer because their DTI "sounds too high." Let the lender run the actual numbers.
👔 SELF-EMPLOYED BUYERS
Self-employed buyers can absolutely use FHA financing. However, gross business revenue is not the same as qualifying income.
A business generating $250,000 in gross revenue does not necessarily give the borrower $250,000 of qualifying income. Tax returns and applicable FHA income guidelines are generally used to determine the income available for qualification.
💡 REALTOR TAKEAWAY → Get self-employed buyers connected with the lender early—ideally before establishing their price range or seriously shopping for homes.
🎁 CAN THE BUYER USE GIFT FUNDS? Yes.
FHA is generally very flexible when it comes to eligible gift funds.
Gift funds may be used toward eligible:
• Down payment
• Closing costs
• Other allowable funds needed to close
Documentation requirements apply, so buyers should coordinate with the lender before transferring money.
🤝 HOW MUCH CAN THE SELLER CONTRIBUTE?
FHA allows substantial seller contributions toward a buyer's eligible closing costs.
Seller Contribution: Up to 6% of the sales price
This can generally be used toward eligible:
• Closing costs
• Prepaid expenses
• Discount points
• Temporary rate buydowns
• Permanent rate buydowns
⚠️ IMPORTANT → Seller contributions cannot become cash back to the buyer or be used toward the buyer's required minimum investment when not otherwise permitted.
The buyer also needs enough eligible costs to actually use the negotiated credit.
💡 REALTOR TAKEAWAY → Before writing a large seller credit into an offer, call me. I'll calculate approximately how much the buyer can actually use and help you structure the concession effectively.
🔨 WHAT ABOUT THE FHA APPRAISAL?
This is one of the biggest areas where Realtors should understand the difference between FHA and Conventional financing.
An FHA appraisal isn't a home inspection, but the appraiser does evaluate certain property requirements related to safety, security, and soundness in addition to determining value.
Potential issues can include things such as:
• Peeling or defective paint, particularly on older homes
• Missing or unsafe handrails
• Broken windows
• Exposed wiring
• Certain roof or structural concerns
• Utilities or major systems that aren't functioning properly
• Other health or safety concerns
Not every cosmetic defect is an FHA problem.
⚠️ WATCH OUT → If you're showing an FHA buyer an older home or a property with obvious deferred maintenance, involve me early if you're unsure whether something could become an appraisal issue.
💡 REALTOR TAKEAWAY → FHA does NOT mean the house has to be perfect. But obvious health, safety, or structural concerns can create required repairs before the loan can close.
🏘️ WHAT TYPES OF PROPERTIES CAN FHA FINANCE?
FHA financing is primarily designed for owner-occupied primary residences.
Eligible properties may include:
• Single-family homes
• Certain condos
• Certain manufactured homes
• 2–4 unit properties, subject to FHA requirements
The borrower generally needs to occupy the property as their primary residence.
⭐ 5 THINGS I WANT EVERY REALTOR TO REMEMBER
1. FHA IS NOT JUST FOR FIRST-TIME HOMEBUYERS.
Repeat buyers can use FHA financing too.
2. 3.5% DOWN CAN GET A BUYER INTO A HOME.
A buyer doesn't necessarily need a large down payment to purchase.
3. FHA CAN BE MORE FORGIVING WITH CREDIT.
A buyer who doesn't look ideal for Conventional financing may still have a strong FHA option.
4. PROPERTY CONDITION MATTERS.
The home doesn't need to be perfect, but certain health, safety, and property-condition issues can require repairs.
5. SELLER CONTRIBUTIONS CAN BE POWERFUL.
FHA may allow up to 6% toward eligible buyer costs. Before writing the offer, call me and we'll determine how to use the concession strategically.