FHA 203(b): Mortgage Loan For
Single Family Homes

FHA Loan Basics - What is a 203(b) Mortgage?

The Federal Housing Administration (FHA), under the jurisdiction of the US Department of Housing and Urban Development (HUD), offers different mortgage programs. The most commonly used and popular among the home loans they offer is the Section 203(b) mortgage insurance program. The purpose of 203(b) is to provide mortgage insurance for a person to purchase or refinance a principal residence. The mortgage loan is funded by a lending institution and is insured by HUD. The FHA doesn’t extend loans directly to borrowers; they are responsible for insuring the loan against future default. In doing so, they lay out specific guidelines and requirements for the loan to be deemed “insurable.”





What is The Eligibility Requirement for 203b Loan?

There are specific eligibility requirements that every borrower must meet to qualify for an FHA loan.

  • Credit – Prospective homeowners seeking FHA financing must meet the minimum credit score requirement set forth by FHA. To qualify for the down payment of 3.5%, a borrower must have a middle FICO score of 580. If the borrower’s score is lower than 580, all the way down to 500, they must come up with a 10% down payment, and certain restrictions will apply.
  • Income – There is no minimum nor maximum income requirement to qualify for an FHA 203b loan. However, there is a debt-to-income ratio requirement, just like any other mortgage loan. The FHA 203b is the most lenient regarding DTI qualification; FHA can go to a 55% back-end ratio, whereas most mortgage loans can only use 45% as the DTI ratio.
  • Asset – The down payment requirement for an FHA loan is 3.5% for those whose credit score is at least 580. Borrowers with credit scores less than 580 must come up with a 10% down payment at a minimum. If a borrower’s FICO score is lower than 500, they will not qualify for an FHA-insured loan.
  • Employment – Borrowers must be able to show and document two (2) years of continuous employment. It must be in the same line of work or field. Each applicant must provide a 30-day paycheck stub, two (2) years of personal tax returns, and W2s/1099s.
  • Homestead – The subject property must be used as a primary residence. Second homes and investment properties are not eligible for FHA-insured loans.

Purpose and Use of FHA 203b Loan

The 203(b) loan can be used to either buy a property or refinance an existing mortgage of a single-family home. They can be used for new-build, existing homes, duplex, triplex, quadplex, and manufactured homes. They can be used to purchase or refinance properties both in urban and rural areas. The term of FHA-insured loans is either 15 or 20 through 30 years fixed rate or Adjustable Rate: 3/1 and 5/1 – 30 years. 

The Federal Housing Administration does not set the interest rate for this loan; it is the FHA-approved lender who sets the interest rate to be charged the borrower. However, FHA negotiates the rate between the lender and the borrower. Participating lenders originate all FHA loans because FHA does not offer direct financing or provide the funds to the borrower. Nevertheless, the Federal Housing Administration sets the guidelines that a borrower must meet for the loan to qualify for FHA insurance. Both the borrower and the property must be eligible for FHA insurance.

Advantages and Benefits of FHA 203b Loan

FHA-insured loans offer plenty of benefits and advantages to the borrower. To name a few:

  • Low Down Payment – FHA loans only require a 3.5% down payment. So, a borrower can get their dream home with less out-of-pocket expense;
  • Lenient Credit Score Requirement – Among all the home loan programs available in the market, FHA is the most allowing only requiring a 580 mid-FICO score. A conforming loan requires a 620 score, and the USDA Guaranteed Home Loan program requires a 620 mid-FICO score;
  • Low-Interest Rate – the Federal Housing Administration negotiates the interest rate charged by the lender to the borrower. Although they don’t set the interest rate, they negotiate what rate may be charged per the qualifying guideline that a borrower is eligible.
  • Limited Closing Costs – The Federal Housing Administration limits the fees that a lender can charge a borrower. Unlike conforming loans that a lender can charge fees to a borrower as part of their closing costs, FHA dictates what can and cannot be part of the borrower’s closing costs;
  • Assumable Loan – FHA loans are assumable unlike any other type of mortgage. When it’s time for the seller to sell their home, a borrower can assume and take over the existing FHA loan as long as they qualify per FHA’s guidelines.

There are several types of FHA loan programs, but the FHA 203(b) home loan is the widely used home loan program in the country. If you are in the market for a new home or thinking of refinancing your existing mortgage, you need to take a look at and consider the FHA 203(b). For details and more information about FHA 203(b) loan program, contact our FHA loan specialists or use the tools on this site. You can also call us at 800-854-4142 or chat with us for an immediate answer to your questions.

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