New Jersey Federal Housing Administration (FHA) loans are the second most common type of residential mortgages, despite making up just about 10% of total residential loans originated for new homes in 2023.

Because FHA Loans in NJ are backed by the government, they allow low credit borrowers to qualify for a mortgage with as little as 3.5% down payment. These loans also have more flexible underwriting guidelines and therefore allows for low to moderate income borrowers to qualify for mortgages they may not have otherwise.

The downside of FHA loans are two fold:

1. The FHA requires you to pay a 1.75% Up Front Mortgage Insurance Premium (UFMIP). The 1.75% fee is a percentage of the loan size and can be paid as part of your closing costs, but is normally rolled into the loan amount.
2. The FHA requires monthly mortgage insurance (MIP) for the life of the loan unless your initial down payment greater than or equal to 10% (which defeats the purpose of using a low down payment loan).

The only way to remove the MIP is by refinancing your FHA loan.