An FHA mortgage is a home loan which is insured by the Federal Housing Administration (FHA), an agency within the United States Department of Housing and Urban Development (HUD). The goal of the FHA program is to make home ownership more accessible to more Americans by making it easier for people who may not be ideal mortgage candidates to obtain mortgages. FHA loans are often very favorable for the borrowers, and from the point of view of the lender, an FHA mortgage is highly secure, making lenders more confident about extending loans to buyers who would otherwise be rejected.
The FHA does not actually issue mortgages or loan funds. Instead, it insures mortgages which are financed by qualified lenders. If someone wants an FHA mortgage, he or she must first find a lender who can issue FHA loans, and then apply for a loan and the FHA insurance. When a mortgage is backed by the FHA, it means that if the home buyer defaults, the FHA will cover the funds, so the lender does not take a loss.
Buyers must meet several qualifications to qualify for an FHA mortgage. First, there are mortgage limits, which are adjusted depending on the price of real estate in the area where the buyer wishes to make a purchase. Applicants for an FHA mortgage must also have decent credit, and an acceptable debt to income ratio. They must also put at least three percent down at the time of purchase.
FHA loans are great for people like first time home buyers, and people who have imperfect credit. Especially in times when the economy is tight, lenders are hesitant to extend loans to people with credit issues, even if these individuals are otherwise good candidates for loans. An FHA mortgage allows someone who made a few mistakes to get a loan, and gives that individual a chance to improve his or her credit record by paying regularly on a home loan.
According to the FHA, over 34 million homes were insured by the FHA between 1934 and 2008. This makes the FHA the largest mortgage insurer in the world. Many lenders in the United States are able to process FHA mortgages, and their mortgage loan officers can provide more information to people who think that they might qualify for an FHA mortgage.