FHA loans” are mortgages insured by the Federal Housing Administration (FHA), which can be issued by any FHA-approved lender in the United States.

 

Congress established the FHA in 1934 to help lower income borrowers obtain a mortgage that otherwise would have trouble qualifying. In 1965, the FHA became part of the Department of Housing and Urban Development’s (HUD) Office of Housing.

 

Before the FHA was established, it was common for homeowners to put down a staggering 50% of the value of the property as a down payment on short-term balloon mortgages, which clearly wasn’t practical going forward.

 

Unlike conventional loans, FHA loans are government-backed, which protects lenders against defaults, making it possible to for them to offer prospective borrowers more competitive interest rates on traditionally more risky loans.

 

An FHA home loan works like any other mortgage in that you borrow a certain amount of money from a lender and pay it back, typically over 30 years. The main distinction is that FHA loans charge both upfront and monthly mortgage insurance premiums, often for the life of the loan.

 

Capital International Financial, Inc.

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