What is the FHA?

There is a lot misinformation out there and part of the reason for this blog is to provide accurate information to young people purchasing homes for the first time. The FHA stands for Federal Housing Administration.

Normally, when purchasing a home one needs to provide 20% of the sale price as a down payment. For example if a property sale price is $500,000 you would need to put down $100,000 as the down payment. This does NOT include closing costs which are typically about 5% – 6% of the price of the home, e.g. $25,000.

In middle America, where a home costs $150,000 this makes perfect sense. In NYC however, who has $100,000 cash!? This is where the FHA comes in.

The FHA is a government insured loan that allows people with good credit and steady jobs to qualify for home purchase by putting only 3.5% down. Using the same example as before, the down payment for the $500K house now becomes $17,500. A number that is much more reasonable and attainable. Now of course, there is a catch! Insurance is not free.

The insurance on these types of loans is called PMI, or Private Mortgage Insurance. The PMI varies from loan to loan and it’s a monthly additional fee you are responsible to pay for until you’ve paid off 20% of the mortgage. PMI will be removed once the loan-to-value drops to 78%. This basically means once you have paid off roughly 20% of your mortgage.

The FHA is a great program available to financially responsible individuals who require a little bit of assistance with their home purchase. It’s a great resource available to young home owners and even existing home owners who wish to re-finance.


About Maya

I like words like "labyrinthian," "kerfuffle," and "serendipitous" because they're mellifluous. I love poetry, pumpkin ales, sangria, long summer days, Fall foliage, going out of my way to step on crunchy leaves in October, live music, Jazz, Salsa dancing, theater, film (foreign and indie), the arts (myriad varieties), dance (in theory and practice) and any place where I can sit outdoors and take it all in.
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