An FHA loan is a mortgage that is insured by the Federal Housing Administration, which is part of the U.S. Department of Housing and Urban Development (HUD). The FHA does not loan money to borrowers; rather, it provides lenders protection through mortgage insurance. This FHA insurance allows lenders such as Fairway to provide home loans with down payments as low as 3.5% of the purchase price. FHA loans are also very useful to refinance and consolidate debts into a low, fixed-rate loan. To obtain mortgage insurance from the Federal Housing Administration, an upfront mortgage insurance premium (UFMIP) equal to 1.75 percent of the base loan amount at closing is required, and is normally financed into the total loan amount by the lender and paid to FHA on the borrower’s behalf. There is also a monthly mortgage insurance premium (MIP), which varies, based on the amortization term and loan-to-value ratio.