How to Get an FHA Loan in Pennsylvania Without a Hassle

Very nice 2-story house with a sold signThe FHA 203(b) home-loan program is popular with Pennsylvania home-buyers because this loan only requires a minimum down payment of 3.5%. And, the seller is permitted (not required) to pay as much as 6% of the buyer's closing-costs (seller assist).

The required cash at settlement loan can be provided as a gift from a relative, a government agency, or a non-profit organization. The credit requirement is not as strict as other home-loans. The minimum credit score for an FHA home-loan is 500, but a credit score less than 580 requires a 10% down payment. The FHA home-loan program is more forgiving with a few credit problems or the lack of traditional credit.

The FHA 203K loan program combines the purchase (or refinance) and rehabilitation in one loan. Read more about the FHA 203K loan

The FHA mortgages are backed by the federal government. Each home-buyer (or homeowner who is refinancing) pays a little extra at settlement. The upfront cost is called a funding fee. The borrower also pays a little extra each month with their mortgage payment; that charge is called MIP (mortgage insurance premium).

The Federal Housing Administration (FHA) does not make the loan to the borrower, but insures the loan. FHA home-loans are made through banks and mortgage lenders who are approved by the FHA. When a lender forecloses on a homeowner, the FHA reimburses the lender for the loss and takes ownership (HUD homes) of the home. The source of the reimbursement comes from the funding and MIP fees.

Here are some of the lending guidelines and highlights for the FHA mortgage:

Upfront mortgage insurance

All borrowers pay an upfront cost of 1.75% of the loan amount. For example, if the loan amount is $100,000, the borrower is required to pay (or finance), $1,750. The funding fee and monthly mortgage insurance are the reason why lenders are willing to loan money on such generous terms.

Minimum down payment for an FHA loan

For applicants with a 580 credit score or higher, the minimum down payment is 3.5% of the sales price. The Federal Housing Administration will permit an applicant with a credit score of 500 to 579; however, the down payment requirement is 10%

FHA monthly mortgage insurance percentage  

The FHA home-loans require private mortgage insurance regardless of the down payment. Even if the borrower is making a 20% down payment, the FHA requires monthly mortgage insurance.

The monthly cost is determined by the down payment (or equity in the case of a refinance) and length of the mortgage. The FHA does not use credit scores or property location as a rating factor.

Here's a chart that displays the monthly MIP cost.

I know it looks a bit confusing, but it is really simple. Is the loan amount less or equal to $625,000? How much is the down payment? Is the down payment greater or less than 5%, and is the term 30-years or 15 years? If the loan amount is less than $625,000, with the minimum down payment of 3.5% for a 30-year term, the mortgage insurance cost factor is .85%.

FHA monthly mortgage insurance percentage chart

Here's how to calculate the FHA monthly insurance cost:

FHA Monthly MIP Calculation
Loan Amount $100,000
MIP factor 0.85%
Annual Cost $850.00
Divided by 12 months $70.83

Seller concessions on FHA loans

The FHA loan program is very generous with the seller paid closing-costs. The assistance limit is 6% of the sales price or actual costs. The seller paid closing-costs include the prepaid costs as well (i.e. real estate taxes, homeowner's insurance, and per diem interest). Home-buyers should be careful when asking the seller to pay their closing-costs, because if the request is for 6% and the closing-costs and prepaids add up to 5%, the additional 1% will revert back to the seller at settlement. The FHA does not allow cash back with an excess seller paid assistance.
Read more about seller assistance

What is the maximum loan amount for FHA?

Each year the Federal Housing Finance Agency (FHFA) establishes the maximum loan limit for FHA home-loans. Most US counties have the following loan limits for 2022 (see FHA Loan Limits Pennsylvania)

FHA loan limitsMost areasHigh-cost areas
Single unit$420,680 $970,800
Duplexes (two units)$538,650 $1,243,050
Triplexes (three units)$651,050 $1,502,475
Four units$809,150 $1,867,275

Debt to income ratio for a FHA loan

Lenders use a formula to determine the maximum loan payment/loan amount. The formula is known as debt to income. There are two parts to the formula, the payment limit is called the front-end ratio and the monthly debt and proposed mortgage payment are known as the back-end ratio. The maximum borrowing limit.
Read more about FHA debt to income

Is an FHA mortgage right for you?

The FHA home-loan is a good choice for borrowers with a minimal down payment and limited cash assets. The FHA monthly mortgage insurance cost is lower than conventional loans.
Learn more about PMI and MIP

The interest-rates tend to be lower with FHA mortgages than with conventional mortgages. The reason is because of the federal backing and associated risk. The downside to an FHA mortgage is the upfront mortgage insurance and monthly mortgage insurance premium. The MIP never falls off with FHA home-loans, even with 20% equity. The only way to remove the monthly MIP is to refinance the mortgage to a conventional loan, assuming 20% equity.

FHA Loans: Frequently Asked Questions  

Q. Are FHA loans a bad idea?
A. FHA loans are a good option for home-buyers with a credit score less than 620. And since interest-rates are driven by credit scores, the interest-rate is likely to be lower with an FHA loan. The FHA permits co-signers and co-borrowers. Additional borrowers can be the difference between approval and denial. The biggest disadvantage of an FHA loan is the mortgage insurance. There are an upfront cost and a monthly premium. The monthly payment never goes away! There is no First Time Home Buyer requirement.

Q. Are FHA loans bad for sellers?
A. The FHA loan program is a bit fussy about the condition of the home. Flaky paint brings the most complaints from home sellers. Defective paint on, or inside any structure including garages, storage buildings, and decks must be remediable. That means the flaky paint must be scraped and repainted. Paint chips must be removed from the property. The FHA wants the house to be in safe, habitable, and in good condition. Repairs are required to be made prior to settlement.

Q. Are FHA loans good or bad?
A. The FHA loan is a great way to finance a home for credit-challenged borrowers. The FHA loan program is more forgiving than the conventional loan programs. home-buyers with a credit score of 680 or higher and a down payment of 20% or more might be better of with a conventional loan.

Q. A frequently asked question is whether an FHA loan is good?
A. The FHA home loan is a great way to finance a home, but like so many other things in life, it depends on your situation. The government backed loans (FHA, VA, and USDA) require a funding fee that can be financed or paid at settlement. The funding fee percentage varies based on the loan program. There is no funding fee with a conventional mortgage. The FHA loan also requires monthly mortgage insurance, even with a 20% down payment. There is no monthly mortgage insurance with a conventional loan, with a down payment of 20%.

Q. Can a home seller refuse an FHA loan?
A. Home sellers can refuse an offer that includes a FHA loan.

Q. Can closing-costs be included in an FHA loan?
A. The only closing-cost that can be "rolled in" is the FHA upfront mortgage premium. The mortgage insurance fee is technically not a closing-cost, but this fee can be financed. The seller paid closing-costs (up to 6% of the sales price) can reduce the out of pocket closing-costs.

Q. Can I get an FHA loan with no money down?
A. Maybe. The Federal Housing Administration offers 100% financing with the 203(h) loan program. This is a niche FHA loan program that provides help to disaster victims purchase new properties or rebuild after their homes have been substantially damaged. Seller paid closing-costs up to 6 percent is allowed. Applicants must have a 620 minimum FICO score. Summary of the Mortgage Insurance for Disaster Victims Section 203(h).

Q. Can I get an FHA loan without 2 years employment?
A. The answer is yes or maybe. You may be approved for an FHA loan with less than 2 years of employment if you meet one of the exceptions. A skilled loan officer should be able to determine if you satisfy the employment guidelines.

Q. Do FHA loans have higher interest rates?
A. Surprisingly, the FHA interest rates are usually lower than conventional mortgages. The reason is due to the federal government's backing. There's' less risk for the lender.

Q. How hard is it to get an FHA loan?
A. The FHA home loan is the least difficult way to finance a home. The FHA loan requires a very low down payment, the credit score can be as low as 580; and the home seller is allowed to pay a large percentage of the home buyer's closing costs.

Q. How many FHA loans can you have in a lifetime?
A. There is no limit on the number of FHA loans a borrower can have, but the borrower is only allowed one loan at a time. There are a few exceptions.

Q. What is the highest debt to income ratio for an FHA loan?
A. 57% is the maximum debt to income for a FHA loan.

Read more about FHA mortgages at