An FHA loan is insured by the Federal Housing Administration. The FHA does not loan money to borrowers, rather, it provides lenders protection through mortgage insurance (MIP). Available to all buyers, FHA loan programs are designed to help creditworthy borrowers who do not meet the requirements for conventional loans.
FHA loan programs are particularly beneficial to those buyers with less available cash. The rates on FHA loans are generally market rates, while down payment requirements are lower than for conventional loans.
Some of the other benefits of FHA financing:
Only a 3 percent down payment is required.
Closing costs can be financed.
Lower monthly mortgage insurance premiums and, under certain conditions, automatic cancellation of the premium.
More flexible underwriting criteria than conventional loans
FHA limits the amount lenders can charge for some closing cost fees (e.g. the origination fee can be no more than 1% of mortgage).
