FHA Loan
An FHA loan is a government-backed mortgage with low down payment requirements. Learn eligibility criteria, benefits, and mortgage insurance costs.
Definition
An FHA loan is a mortgage insured by the Federal Housing Administration, designed to help low‑ and moderate‑income borrowers obtain home financing. FHA loans require smaller down payments, often as low as 3.5%, and more flexible credit qualifications than conventional loans. Because the government insures the loan, lenders are protected against loss if the borrower defaults. Borrowers must pay an upfront mortgage insurance premium (UFMIP) and ongoing monthly mortgage insurance premiums (MIP) for at least 11 years or the life of the loan, depending on down payment and loan term. FHA loans can make homeownership accessible but may cost more over time due to insurance fees.
Why It Matters
The trade for a 3.5% down payment is mortgage insurance that never falls off. Put less than 10% down and monthly MIP stays for the full 30 years unless you refinance out, roughly $183 a month on a $400,000 loan. FHA appraisers also enforce property standards, so peeling paint, a missing stair handrail, or a spent roof can stop the loan until somebody pays to fix it.
Examples
A borrower with a 620 score and 4% down gets approved after two conventional lenders decline, and finances the 1.75% upfront premium, about $6,800 on a $390,000 balance.
The appraiser flags chipped paint on a 1948 Everett bungalow's soffits; the seller repaints for $1,200 and pays $175 for the reinspection before the file can close.
Three years on, the same buyer refinances to conventional at 22% equity and drops $210 a month in mortgage insurance.
Tips
Model the exit before you take the loan. If you expect 20% equity within four years, MIP is a bridge; if you do not, it is a 30-year expense.
Reach 10% down if you can. That one threshold cuts MIP from the life of the loan to 11 years.
Walk the house against FHA minimum property standards before offering: handrails on stairs, no peeling paint on anything built before 1978, working heat in every habitable room.
Related Terms
Government-Backed Loan
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Down Payment
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Private Mortgage Insurance (PMI)
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