The Federal Housing Authority, typically called the FHA, is a government agency that was created in 1934. At that time, few Americans owned their own home. The FHA was designed to help more Americans achieve the dream of home ownership. FHA mortgages were designed to help people who could not buy a home through a conventional mortgage still be able to live in a home of their own. Today, a much larger percentage of Americans do own their own home, thanks to the FHA and similar home loan programs offered by the Veterans Administration.
The FHA isn’t lending money, but they are backing mortgages. This makes lenders more likely to lend, as their risk is reduced. If a borrower defaults on a FHA home loan, the lender has some recourse. FHA loan qualifications are typically less stringent, allowing more people to qualify for a home loan. FHA home loans are mortgages that are insured by the Federal Housing Authority but banks and private lenders are the ones offering the loans.
Potential borrowers who suffered a bankruptcy or a foreclosure in the past may benefit from a home mortgage from an FHA approved lender, as the criteria is less strict. The debt to income ratio is also more favorable to borrowers than most conventional mortgages. Basically, the FHA is trying to help as many Americans as possible buy their own home.
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