What exactly is a FHA Loan?
A FHA Loan is a mortgage loan that insured by the Federal Housing Administration (FHA). The FHA does not actually provide the loan; instead, it actually insures the loan for the lender. If the borrower defaults, the lender can then seek recourse directly from the FHA. This actually lowers the risk for the lender and can make them more likely to issue the loan.
The FHA was initially formed in 1934 and during 1965 joined the Department of Housing & Urban Development. The FHA has insured over 33 million home mortgages since it was created. Today, it still continues to assist low- and middle-income families move into the homes of their dreams by easing the ways to obtain mortgages. Currently, more than 800,000 homeowners have mortgages that are FHA-insured.
One of the benefits of a loan insured by the FHA is not only low interest rates, but also initial down payments that can be as low as 3.5 percent. This makes it possible to afford a home that is higher-priced than a conventional loan that is similar and requires 5 to 10 percent down.
A FHA loan may also assist home buyers to finance their closing costs and in addition will offer mortgage insurance.