Federal Housing Authority Mortgage (FHA)

It is also known as a government mortgage. A mortgage that is insured by the Federal Housing Administration FHA) is called FHA mortgage. The Federal Housing Administration or FHA is a federal agency in the U.S. Department of Housing and Urban Development or HUD. The purpose of the FHA is help lower income families purchase housing. FHA allows borrowers with less than perfect credit to receive comparable interest rates to those with good credit.

FHA is not a lender itself, instead it insures mortgage loans made by private lenders. This insurance minimizes the financial risk of the the borrower to the lender and allows the lender to offer a lower mortgage interest rate.

Advantages: The main advantage of an FHA mortgage is a lowed required down payment, but the maximum loan amount is lower than what is available for conventional mortgages. FHA insured loans require mortgage insurance. Mortgage insurance is a policy that protects lenders against some or most of the losses that result from defaults on home mortgages.

Disadvantages: There are some FHA mortgage lending limits for a variety of housing types in your state or county. The FHA defines allowable closing costs that may be charged to the borrower.