An FHA loan is a mortgage that’s insured by the Federal Housing Administration (FHA), a U.S. government agency within the Department of Housing and Urban Development. The government agrees to insure loans for lenders that have been FHA approved to reduce risk to the lender.
While the FHA insures many types of loans, the FHA 203(b) and FHA 203(k) tend to be the most popular.
Lenders take on considerably less risk with an FHA loan because the U.S. Department of Housing and Urban Development agrees to cover any loss they may incur if there are problems with the payment of the mortgage. This allows lenders to offer loans with lower interest, more flexible terms, and less stringent guidelines. These benefits will make it easier for you and your family to build home equity and refinance your mortgage in the future if you choose to do so.
It’s also typically easier to qualify for an FHA loan than it would be to qualify for a conventional loan. To qualify for an FHA loan, a less-than-perfect credit score is usually acceptable. Another advantage of choosing an FHA loan is that this type of loan is usually assumable. This means that if you choose to sell your home, the new homebuyer can assume your remaining FHA insured loan balance.