FHA loans in Maryland: what they are and how they compare

How FHA insurance works, and why it changes the rules

FHA does not lend you money. It insures the loan a lender makes, so if you default the lender is protected, and the CFPB notes that the cost of that insurance is passed to you. In exchange, the lender can accept a smaller down payment and a credit history that a conventional loan might not.

HUD describes the program’s three signature features as low down payments, low closing costs, and easier credit qualifying, and notes that FHA loans are available on one- to four-unit properties, which means a small multi-unit home you live in can qualify.

The 3.5 percent down payment and what the insurance costs you

HUD states the down payment can be as low as 3.5 percent of the purchase price. Gift funds from family and approved assistance programs can be part of it; the down payment guide on this site explains how those are documented.

The CFPB explains that FHA mortgage insurance is paid partly upfront, an amount that is usually added to the loan, and partly with each monthly payment. Unlike private mortgage insurance on a conventional loan, which can be cancelled once you reach enough equity, FHA’s monthly premium follows rules that depend on your down payment and can last for the life of the loan. Ask your loan officer to show both numbers on the Loan Estimate and to compare them with a conventional option.

Credit and qualifying: flexible does not mean automatic

The CFPB says FHA standards are generally more flexible than conventional ones, and lenders often accept lower credit scores and higher debt-to-income ratios than they would on a conventional loan. Each FHA-approved lender still applies its own requirements on top of FHA’s, and every file is underwritten: income, debts, assets, credit history, and the property all get verified.

If your credit has a recent problem, such as a collection, a late mortgage payment, or a bankruptcy, ask the loan officer how FHA treats it and how much time must pass. The answer is specific to the event and the program, and it is better to hear it before you shop.

Loan limits and condos in Maryland

FHA caps the loan amount by county, and the CFPB explains that limits are higher in higher-cost areas and change each year. Maryland counties near Washington and Baltimore have higher limits than rural counties, so the same loan can be inside the limit in one county and above it in the next. Your loan officer checks the current limit for the property’s county.

A condominium has an extra step: the project generally has to be FHA-approved, or the unit has to qualify under FHA’s single-unit rules, before an FHA loan can be used. If you are looking at condos in Montgomery, Prince George’s, Baltimore, or any other Maryland county, ask early whether the building is approved.

• Ask for the FHA limit in the county where you are shopping before you set a price ceiling.
• Ask whether a condo project is FHA-approved before you write an offer.
• Expect an FHA appraisal that also checks minimum property standards, not only value.

FHA versus conventional: the comparison to ask for

Neither is better in general. FHA tends to fit buyers with smaller savings or thinner credit; conventional tends to fit buyers who can put more down or have strong credit, because private mortgage insurance is priced by credit and can be removed. The table shows what to compare on the same house.

Ask your loan officer for a Loan Estimate for each option on the same price and down payment. The monthly payment, the cash to close, and the total cost over the years you expect to stay answer the question better than any rule of thumb.

How to start

FHA loans come only from FHA-approved lenders, and HUD publishes the list. Ask your loan officer whether the lender is approved and whether FHA fits your file, then get preapproved the same way as any other loan. In Maryland, Paola takes that first call at New Priority Lending Corp., and the contact form here only asks her to call you.

If you want an independent opinion on FHA versus conventional, HUD-approved housing counselors explain both without being paid by anyone in the transaction. Nothing on this page approves you for an FHA loan or promises one is available for a particular property.