August 5, 2021

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Mortgage News

When can you buy a property with a 5% down payment?

If this is your first time thinking about buying a home, minimum deposit can be a deal breaker for some people’s financial situation. Even for someone who can afford the mortgage payments over the long term, it can be almost impossible to raise that much money. Fortunately, there is now a solution for people who do not have enough savings or who do not meet other criteria normally required by other loans, such as a higher credit score. FHA loans provide first-time home buyers the opportunity to purchase a home with less financial conditions.

An FHA loan is a type of loan approved by the Federal Housing Administration under the Housing and Urban Development Department. Since these loans are secured by the state, the lender is protected in the event of a default by the borrower. FHA loans range from $ 356,362 to $ 822,375. While the FHA requirements make them more attractive to first-time home buyers or those on lower incomes, there are a few criteria a borrower must meet in order to be approved for an FHA loan, such as:

  1. A credit score of 500 or higher: If you have a credit score over 580, you are eligible for a down payment of only 3.5%. However, if your credit score is between 500-580, you will need to pay a 10% deposit.
  2. Mortgage insurance premium: To be eligible for FHA loans, you must pay an upfront payment, typically 1.75% of the total, and an annual mortgage insurance premium of 0.45% – 1.05%. The FHA ensures that the lender gets paid if the borrower defaults by collecting these MIPs.
  3. Debt level <43% : Your total monthly debt, including existing student loans, car loans, minimum credit card payments, etc., along with mortgage payments and their premiums, must be a maximum of 43% of your monthly income.
  4. Main residence: The house you buy must be your primary residence. This is done so that FHA loans only serve as an aid to people who cannot afford other loans, not to those who want to use it as an investment opportunity.
  5. Fixed income and proof of employment: This requirement is in place to ensure that the lender can make the mortgage payments.

To check what your monthly FHA mortgage payment would be, use Casaplorer’s FHA loan calculator.

When can you buy a property with a 5% deposit?

Advantages and Disadvantages of FHA Loans

FHA loans present a number of advantages and disadvantages that you need to weigh before deciding whether this loan is the right decision for you in the long term.


  1. FHA loans have lower creditworthiness requirements of at least 500 when compared to other loans, such as
  2. You can pay a 3.5% deposit if your credit score is greater than 580 and a 10% deposit if your credit score is between 500 and 580
  3. In general, the interest rates on FHA loans are lower than the interest rates on conventional loans
  4. FHA loans are justifiable under certain conditions, meaning if the borrower wants to sell the house later, the existing FHA loan can be taken over by the new owner


  1. FHA loans come with the high cost of mortgage insurance premiums, which are divided into an upfront fee and annual mortgage insurance premiums
  2. While a traditional loan will have your private mortgage insurance premiums canceled once you hit the 20% down payment, an FHA loan requires the borrower to pay insurance premiums until the loan is fully repaid

In conclusion, FHA loans are a great solution for people with low savings or who have not yet built their creditworthiness. While this loan comes with high insurance premiums, it also relieves you of the stress of paying a large down payment. Hence, because of their many benefits, FHA loans need to be carefully considered when you are in the home buying process.