FHA loans are originated by an FHA-approved mortgage lender and are guaranteed by the Federal Housing Administration, a division of HUD. Borrowers often have easier access to FHA mortgage loans because historically FHA credit requirements have been more flexible.
Borrowers never have direct contact with HUD or FHA, as neither HUD nor FHA loan money. Instead, an FHA loan means that in the event that you were to default on your mortgage loan, FHA would pay off the lender and take possession of the house.
FHA loans typically:
- Have more flexible credit requirements
- Require mortgage insurance, which involves an up-front premium charge as well as ongoing monthly premium payments. The exact charges are based on a percentage of your loan amount. The up-front premium may be financed in the loan, and the monthly premium is usually included in your total payment (PITI). The Federal Housing Administration also insures other types of specific loans, such as loans to Native Americans on trust land or the 203(k) rehabilitation loan for any owner- occupied residence.