Frequently Asked Questions

What is FHA?

FHA stands for Federal Housing Administration. The Federal Housing Administration provides mortgage insurance to approved lenders across the country, as well as in U.S. territories. Since 1934, the Federal Housing Administration has been the largest insurer of mortgages in the world, with well over 34 million loans insured.

How does FHA insurance work?

In order to qualify for an FHA mortgage, certain requirements instituted by the Federal Housing Administration must be met. Each individual FHA-approved lender will underwrite each FHA loan application to these guidelines. If a lender approves an FHA mortgage, the loan is then insured by the federal government. In the end, the lenders bear less risk if a homeowner defaults on their mortgage payment because FHA will pay a claim to the lender.

What's the reasoning behind FHA mortgage insurance?

Most conventional loans require borrowers to have 10% to 20% of the home's value for a down payment. FHA-insured loans require as little as 3.5% of the home's value as a down payment. That said, there is more flexibility for the borrower because it requires a minimal cash investment to close. The cost of the mortgage insurance is calculated within the monthly payment. In many cases, when the loan-to-value on the home drops to 78% or the loan is five years old (whichever is longer), the cost of the insurance is removed.

Who funds FHA?

FHA-insured mortgages don't cost taxpayers a single dime. FHA functions solely on self-produced income. When a homeowner pays their monthly mortgage payment, the proceeds of the FHA mortgage insurance are received and used to carry out the duties of the program.