FHA is the acronym for the Federal Housing Administration. FHA loans are provided by FHA-approved lenders. FHA loans are federally assisted and typically allow lower income Americans to borrower money for home they would otherwise not be able to afford.
The Federal Housing Administration requires a mortgage insurance premium (MIP), which is equal to a percentage of the loan amount. MIP is normally financed by the lender and paid to FHA upon closing of the load process. FHA does not make loans. It insures loans made by private lenders. Since each lender sets it’s own rates, seeking an FHA loan could be an exhausting experience. A good mortgage broker can prove helpful when shopping for the best FHA program as they often maintain relationship with several FHA loan sources.
An advantage of the FHA loan is that it allows first time buyers to put down as little as 3.5% and receive up to 6% toward closing costs. Creditworthiness isn’t as heavily scrutinized as a borrower can enter an FHA loan agreement with a minimum FICO score of 620 and still qualify for the best rates. FICO scores below 620 can still qualify but interest rates will be higher.