Housing Finances Is an FHA Loan Right for You? Read the Article Open Share Drawer Share this:Click to share on Twitter (Opens in new window)Click to share on Facebook (Opens in new window)Click to share on Tumblr (Opens in new window)Click to share on Pinterest (Opens in new window)Click to share on LinkedIn (Opens in new window) Written by Mint Published Jul 21, 2015 2 min read Advertising Disclosure The views expressed on this blog are those of the bloggers, and not necessarily those of Intuit. Third-party blogger may have received compensation for their time and services. Click here to read full disclosure on third-party bloggers. This blog does not provide legal, financial, accounting or tax advice. The content on this blog is "as is" and carries no warranties. Intuit does not warrant or guarantee the accuracy, reliability, and completeness of the content on this blog. After 20 days, comments are closed on posts. Intuit may, but has no obligation to, monitor comments. Comments that include profanity or abusive language will not be posted. Click here to read full Terms of Service. Purchasing your first home is one of the most important financial decisions of your life. If you’re currently renting in an expensive housing market, the one thing standing in your way is likely the down payment – easily a six-figure lump sum at the traditional 20%. But what if you could lower the required down payment percentage to as low as 3.5%? Sounds appealing, right? It’s possible with a Federal Housing Administration (FHA) loan, but you should understand all the facts before signing on the dotted line. Making Home Ownership Accessible The FHA loan has been around since 1934, when the U.S. government launched the program to jumpstart a lagging housing market. Since its inception, FHA has insured more than 34 million home mortgages, with 4.8 million single-family mortgages in its portfolio today. FHA loans aim to make home ownership more accessible to all Americans by offering down payments as low as 3.5% and low interest rates for borrowers with low credit scores. It’s a “government-backed” loan, meaning the government doesn’t actually lend the money – it insures the mortgages. If a borrower can’t repay the loan, the FHA reimburses the lender. This allows mortgage lenders to confidently offer loans to applicants who might otherwise be denied. Potential Disadvantages Because FHA is providing insurance, borrowers pay a mortgage insurance premium (MIP) – just like any other kind of insurance. Luckily, the U.S. government reduced MIPs for the first time since 2001 this year – an MIP is required for the life of an FHA loan and the expense should be carefully considered. MIPs are split into two parts: Upfront Mortgage Insurance Premium (UFMIP): UFMIP is paid at the time of closing and is equal to 1.75% of your loan. So for every $100,000 of your mortgage loan, your UFMIP is $1,750. Annual MIP: Your annual insurance rate varies between .7 and .85 percent, based on the length of your loan, the amount you’re borrowing, and your initial loan-to-value ratio. Choosing between a conventional loan and an FHA-backed mortgage requires some financial soul searching. A conventional lender will demand a higher credit score, larger cash down payment, and lower debt-to-income ratio – as a rule of thumb, anyone with a credit score below the mid-600s or desiring a down payment less than 5% will likely be better served by an FHA loan, even with the MIP payments. FHA.com (not affiliated with FHA) offers an MIP calculator to understand your additional costs. The dream of home ownership is a lasting American ideal. The FHA Loan is a fantastic way to open the doors to your own dream, but as with all financial decisions, make sure you understand what you’re signing up for. Previous Post Here Comes Baby: How to Financially Prepare for Your Newest… Next Post 8 Easy DIY Car Repairs to Save Big Written by Mint Mint is passionate about helping you to achieve financial goals through education and with powerful tools, personalized insights, and much more. More from Mint Browse Related Articles Mint App News Intuit Credit Karma welcomes all Minters! Retirement 101 5 Things the SECURE 2.0 Act changes about retirement Home Buying 101 What Are Homeowners Association (HOA) Fees and What Do … Financial Planning What Are Tax Deductions and Credits? 20 Ways To Save on… Financial Planning What Is Income Tax and How Is It Calculated? Investing 101 The 15 Best Investments for 2023 Investing 101 How To Buy Stocks: A Beginner’s Guide Investing 101 What Is Real Estate Wholesaling? Life What Is A Brushing Scam? Financial Planning WTFinance: Annuities vs Life Insurance