Part of the Department of Housing and Urban Development (HUD) , the FHA is a government agency that provides insurance for loans granted by FHA-approved lenders throughout the US. The FHA insures banks that provide loans to borrowers with low down payments, usually 3.5 – 5%, and competitive interest rates. The FHA sets the guidelines for the various types of loans it makes available to borrowers. Borrowers must pay a mortgage insurance premium as part of their monthly loan payments that goes to the FHA. If a borrower defaults on his loan and the lender ultimately has to foreclose on the home, the FHA will provide the loan funding to the lender through these public mortgage insurance premiums paid by borrowers.

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