An FHA loan is a mortgage that is backed by the Federal Housing Administration (FHA), a government agency. FHA loans are designed to help first-time homebuyers and those with lower credit scores qualify for a mortgage. For example, a potential homebuyer could use an FHA loan to purchase a modest three-bedroom home in a small town.
FHA loans are popular because they offer several benefits. They have lower down payment requirements and more flexible credit score requirements than conventional loans. FHA loans also come with mortgage insurance, which helps protect the lender if the borrower defaults on the loan. One key historical development in the history of FHA loans was the National Housing Act of 1934, which created the FHA and established the FHA loan program.