Definition
A mortgage insured by the Federal Housing Administration that allows lower down payments and credit scores than many other loans.
What it means
An FHA loan is made by a private lender and insured by the Federal Housing Administration, part of the Department of Housing and Urban Development (HUD). Borrowers with a credit score of 580 or higher can put down as little as 3.5%, and scores from 500 to 579 generally need 10% down; lenders can set stricter rules. FHA loans charge an up-front mortgage insurance premium of 1.75% of the loan, which can be added to the loan, plus an annual premium paid monthly. If you put down less than 10%, the annual premium generally lasts for the life of the loan; with 10% or more it lasts 11 years. The home must be your primary residence and meet property standards, and loan amounts are capped by county limits set each year.
Example
On a $350,000 home with 3.5% down ($12,250), the base loan is $337,750 and the 1.75% up-front premium is about $5,911, often added to the loan balance.
Illustrative numbers only. Your situation will differ.