Definition
A mortgage insured by the Federal Housing Administration, designed for buyers with smaller down payments or thinner credit. Down payments start around 3.5% and credit requirements are more forgiving than on conventional loans, in exchange for mandatory mortgage insurance premiums (MIP).
Why it matters
FHA is often the realistic path to a first home for buyers years away from 20% down or rebuilding credit. The trade is MIP, which usually cannot be cancelled the way PMI can, so many FHA borrowers plan to refinance into a conventional loan once equity builds.
Example
A first-time buyer with a 640 credit score buys a $300,000 home with 3.5% down, $10,500, after conventional quotes came back with steep pricing at their score. They pay MIP monthly, and three years later, with 20% equity from payments and appreciation, they refinance to conventional and drop it.
Put it into practice
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.