Although it is not a lending institution, the Federal Housing Administration or FHA, provides services to lower income families that are considering the purchase of a home. A home loan that is insured by the FHA is known as a FHA mortgage. When lenders are considering a mortgage application, the FHA offers an insurance to the lender should the borrower default on the property. In addition to seeking repayment from the original borrower, the mortgage is also backed by the FHA, lowering the risk for lenders. With this type of security, lenders are more likely to approve an application where the borrower may have blemishes on their credit or their income is lower than the lender's threshold. http://www.allbusiness.com/personal-finance/real-estate-mortgage-loans/3392-1.html

FHA mortgages also provide borrowers with protection from costly rates and fees by restricting the lender from charging more than certain percentages for each closing cost. For example, lenders that provide a homeowner with a FHA mortgage are limited to charging no more than 1 percent for administrative fees. http://www.allbusiness.com/personal-finance/real-estate-mortgage-loans/3392-1.html

FHA loans may not available at all financial or mortgage lending institutions. Lenders are not required to offer these types of mortgages, however those that do can provide more information regarding the application process.

The requirements and limitations of a FHA mortgage loan may differ from that of a conventional mortgage. There are specific guidelines and limitations to be eligible for this type of loan. http://www.allbusiness.com/personal-finance/real-estate-mortgage-loans/3392-1.html

1. Housing costs including insurance and taxes can not exceed 29 percent of the borrower's annual household income
2. A good credit history is required; however, there may be more forgiveness when a mortgage is secured by the FHA
3. Down payment amounts as low as 3 percent of the cost of the home may be required
4. Adherence to the maximum loan amount guidelines that are determined uniquely for each state and countyhttps://entp.hud.gov/idapp/html/hicostlook.cfm

The Federal Housing Administration was created in 1934 by the United States Congress to insure loans on homes purchased in the US. In 1965, the FHA became a part of the Department of Housing and Urban Development.http://www.allbusiness.com/personal-finance/real-estate-mortgage-loans/3392-1.html Since it originated, the FHA has provided lenders security on more than 34 million mortgages making it the largest type of mortgage insurer across the globe. http://www.hud.gov/offices/hsg/fhahistory.cfm

The content in this page is not a substitute for professional financial advice. Please contact a finance professional before using the information presented here.