What is an FHA Loan

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What is an FHA Loan

FHA Loan
The Federal Housing Administration (FHA) is a federal agency within the U.S. Department of Housing and Urban Development (HUD). FHA's primary objective is to assist in providing housing opportunities for low- to moderate-income families. FHA has both single family (one to four units) and multifamily (five or more units) mortgage lending programs. The agency does not generally provide the funds for the mortgages, but rather insures home mortgage loans made by private industry lenders such as mortgage bankers, savings and loans, and banks.

Homeowners with FHA loans usually only have to make a small down payment equal to about 3% of the value of the home. They also enjoy a lower interest rate, between 0.5% and 1% below the interest rates on other mortgages. The down side is that they do indeed have to purchase private mortgage insurance, or -- as it's called under these loans -- mortgage insurance premium (MIP).