30-Year Fixed Rate FHA: The Ultimate Guide

Nothing screams that you’ve achieved the American dream quite like owning your own home. But for many people, the stringent credit requirements and substantial down payment needed to secure a mortgage can stop that dream from ever becoming a reality. The Federal Housing Administration (FHA) has stepped in to offer a solution through its own loan program, which makes homeownership more achievable for eligible borrowers with limited savings or a less-than-perfect credit history.

One of the most popular types of FHA loans is the 30-year fixed-rate mortgage, which has all the perks of a conventional loan with this term and fixed interest rate while also boasting greater accessibility. This article will run through the specifics of a 30-year fixed-rate FHA loan, including:

Eligibility requirements
A real-life example
Loan types available
Pros and cons

What is a 30-Year Fixed-Rate FHA Loan?

The government introduced FHA loans following the Great Depression to boost homeownership, which was becoming increasingly difficult for normal people to achieve. Since their introduction, homeownership in the US has steadily risen.

There are three features of a 30-year fixed-rate FHA loan to break down:

30-year term
Fixed rate
Government-issued

Loan Term

The 30-year loan term is the simplest aspect to explain and understand.

It simply refers to lenders spreading loan repayments out over 30 years, resulting in lower monthly payments than shorter loan terms (e.g., 15-year or 20-year mortgages).

There is a trade-off, however, which we’ll explore later in this article.

Fixed Rate

Then there’s the fixed interest rate. Fixed-rate loans have a consistent interest rate for their entire loan duration, no matter what’s happening with the rest of the economy.

In contrast, adjustable-rate mortgages (ARMs) offer an initial lower interest rate for a specified period, before adjusting the rate depending on market conditions.

Government-Issued

But what really makes the FHA loan stand out is the fact it’s a government-issued mortgage. In other words, the US government pledges to compensate the lender in the event of a borrower default, encouraging loan providers to lend to individuals they would typically deem as posing a greater risk.

In the case of FHA loans, the government department providing this backing is the Federal Housing Administration (FHA). But there are other types of government-backed mortgages, such as VA loans.

Government-issued loans are designed for specific types of borrowers — which leads to our next section.

FHA Loan Eligibility Requirements

FHA loans are meant for low-to-moderate income borrowers who would struggle to obtain a conventional mortgage.

Credit Score

While the typical credit score to take out a mortgage is around 620, for an FHA loan, you may be able to secure a mortgage with a credit score of just 500.

While the credit scoring agency FICO considers a 620 score to be in the “fair” category, they class a 500 score as “poor.”

However, the exact credit score required may vary between lenders.

Down Payment

A borrower’s credit score also affects the down payment they need to provide and the interest rate a lender will offer them. If you have a lower credit score, loan providers may expect a higher down payment — even though you’re taking out a FHA loan.

Typically, down payments for an FHA loan vary between 3.5% and 10%. This is at the low end of the spectrum for conventional mortgages, but other types of government-backed loans are possible to obtain with no down payment at all.

Other Criteria

To obtain an FHA loan, you may also need a maximum debt-to-income (DTI) ratio of 43%, which measures your monthly debt payments — such as auto loans and personal loans — to your gross monthly income.

You will likely also need a stable income source, which typically means consistent employment over the last two years.

FHA Loan Limits

You can only use an FHA loan if you’re using the mortgage to finance an owner-occupied principal residence. You cannot use it for an investment or rental property.

The house must also meet the FHA’s criteria for the property’s condition and safety, which ensures the house is classed as “insurable.” Most property types are eligible, including townhouses, condominiums, and rowhouses.

Another consideration is the value of the house. The FHA imposes upper limits on houses eligible for its loan program, which vary depending on the cost of living in the region.

These change every year, but in 2024, the limits range between $498,257 and $1,149,825. There’s also a selection of “special exception areas” with even higher limits. These include Hawaii, Alaska, and Guam.

How Do 30-Year Fixed-Rate FHA Loans Work?

Although the government insures an FHA loan, the process of applying for this type of loan doesn’t vary significantly from a conventional mortgage.

You’ll still need to seek out a lender — this could be a credit union, a bank, a mortgage company.

However, the FHA does set the guidelines and requirements for the loans, which lenders must comply with. As a result, not all lenders will offer 30-year fixed-rate FHAs, so you may need to shop around a little.

In addition to the eligibility requirements and loan limits outlined above, one quirk of FHA loans is that lenders cannot charge unnecessary fees. This includes prepayment penalties (a charge that loan providers sometimes impose on those who want to pay their mortgage off early).

As with any mortgage, the interest rate you receive will depend on factors like:

Size of downpayment
Strength of credit history
General market conditions

30-Year Fixed-Rate FHA Loan Example

To illustrate how a 30-year fixed-rate mortgage loan functions, let’s consider an example of a first-time homebuyer looking to purchase a $200,000 home.

Assuming a minimum down payment of 3.5%, they would need to put down $7,000, which leaves them with a loan amount of $193,000.

Let’s also assume an interest rate of 5%. This puts the monthly principal and interest rate payments up to $1,054 — but we’re not finished yet.

The borrower would also face a mortgage insurance premium (MPI), which applies to most borrowers who put down a deposit below 20%. This could be paid upfront for $3,378, but let’s say that it’s added to the monthly payment, resulting in an additional charge of $88.

Finally, there are property taxes and home insurance to consider, which US Bank estimates would come to roughly $583 a month in total.

This would result in estimated total monthly payments of $1,725.

Types of 30-Year Fixed-Rate FHA Loans

Generally, when people talk about FHA loans, they are referring to purchase loans — mortgages used to purchase a primary residence.

However, there are a few other types to be aware of:

FHA refinance loans: Allow borrowers to refinance an existing mortgage into an FHA loan.
FHA 203(k) rehabilitation loan: Combine purchase or refinance loans with a loan used to finance renovations or repairs.
FHA Energy Efficient Mortgage (EEM): Lets borrowers finance energy-efficient improvements as part of an FHA loan.

Since these are more niche products, it may be challenging to find a lender.

Pros and Cons of 30-Year Fixed-Rate FHA Loans

Pros	Cons
Predictable monthly payments due to fixed interest rate	May have higher interest rates than conventional loans
Lower down payments make homeownership more accessible	FHA loan limits restrict the type of house you can purchase
Usually more forgiving of lower credit scores or other imperfections	Fewer lenders offer the product
Don’t charge prepayment penalties

Is Now a Good Time for a 30-Year Fixed-Rate FHA Mortgage?

You can find the latest average daily mortgage rates on FreeRateUpdate. While we post the rates for conventional mortgages, they make a useful reference point to compare with quotes from FHA loan providers.

Plus, the movements of interest rates for FHA mortgages roughly mirror those of FHA mortgages (although they usually have higher interest rates).

Consider a 30-Year Fixed-Rate FHA Loan If:

You have limited savings for a down payment.
You have a less-than-perfect credit history but want to buy a house as soon as possible.
You value predictable monthly payments and long-term stability.
You’d prefer to spread your monthly payments over a longer period.
You’ve compared FHA loans with other mortgage types and found that the quotes come out on top.

FAQs

How do FHA Loans Compare to VA Loans?

VA loans have more specific eligibility requirements as they’re only available to certain veterans and active-duty military personnel. But they generally have more favorable terms, such as no down payment or mortgage insurance premiums.

What are the Risks of FHA Loans?

FHA loans generally have slightly higher interest rates than conventional loans, which can make them more risky to some borrowers. However, you may have the option to refinance to another loan type later, which reduces this risk

Can I Use an FHA Loan to Purchase a Multi-Family Property?

You can use an FHA loan for a property that has up to four units, but you must occupy one of the units as your primary residence.

How Long Does it Take to Get Approved for an FHA Loan?

The FHA loan approval process typically takes 30 to 45 days. However, it can vary depending on your individual circumstances and your lender.