An FHA loan is a mortgage that is insured by the Federal Housing Administration (FHA). The federal government insures loans for FHA-approved lenders in order to reduce their risk of loss if a borrower defaults on their mortgage payments. The FHA program was created in response to the rash of foreclosures and defaults that happened in 1930s. THE FHA provides mortgage lenders with adequate insurance and helps stimulate the housing market by making loans accessible and affordable. FHA loans are popular with first-time homebuyers.
Minimum Down Payment: 3.5% or if you are purchasing a HUD owned home, you may qualify for HUD’s $100 down program which allows you to purchase a HUD owned home with an FHA mortgage with only $100 down.
Upside: An FHA loan allows buyers who may not qualify for a home loan to obtain one low down payment.
Downside: The size of your loan may be limited.