An FHA-insured mortgage is made by an approved lender and insured by the Federal Housing Administration, which is part of the U.S. Department of Housing and Urban Development (HUD).
How FHA Works
FHA generally does not lend money directly to the consumer. FHA insurance reduces lender risk by insuring eligible mortgages made under program requirements.
Why Buyers Use FHA
- Lower down-payment structure
- More flexible credit treatment in some cases
- Flexible underwriting characteristics
- Availability for qualifying one-to-four-unit properties
Not Only for First-Time Buyers
FHA is heavily used by first-time buyers, but the program is not restricted only to first-time homebuyers.
Mortgage Insurance
FHA generally requires an upfront mortgage insurance premium and an annual mortgage insurance premium collected through monthly payments. Duration depends on the mortgage terms and applicable FHA rules.
Homebuyer takeaway: Compare FHA against actual conventional or VA (U.S. Department of Veterans Affairs) alternatives, including rate, mortgage insurance, cash required, payment, and long-term cost.
Sources
HUD: FHA History and Purpose
HUD: Single Family Housing
HUD: FHA Mortgage Insurance Premiums