An FHA loan is a mortgage loan insured by the Federal Housing Administration (FHA). Essentially, the federal government insures loans for FHA-approved lenders to reduce their risk of loss if a borrower defaults on their mortgage payments. This insurance makes it easier for lenders to offer favorable terms to borrowers who might not qualify for conventional loans.

The FHA program was created in response to the rash of foreclosures and defaults that occurred in the 1930s. Its purpose is to provide mortgage lenders with adequate insurance and to stimulate the housing market by making loans accessible and affordable. FHA loans are particularly beneficial for first-time homebuyers and those with less-than-perfect credit.

Do I Qualify?

Typically an FHA loan is one of the easiest types of mortgage loans to qualify for because it requires a low down payment and you can have less-than-perfect credit. An FHA down payment of 3.5% is required. Borrowers who cannot afford a traditional down payment of 20% or can't get approved for private mortgage insurance should look into FHA loans.