An FHA loan is a mortgage loan product used in financing owner-occupied real estate properties. An FHA loan is insured by the US Federal Housing Administration and can be issued by an FHA-approved lender.

FHA loans require mortgage insurance premiums, commonly referred to as “MIP”. It is paid in two payments. The first is a one-time upfront payment at closing that is financed into the loan and the second is an annual payment which is broken down into monthly installments and is part of the monthly mortgage payment.

Unlike conventional loans, the minimum credit score is typically 580, which may vary by lender. The down payment requirement for someone with a credit score greater than 580 is 3.5%.

If a borrower’s credit score is lower than 580 but in the range of 500-579, a borrower may still qualify for an FHA loan but a minimum down payment of 10% will be required.