What is an FHA Mortgage Purchase Loan?

When it comes time for most people to buy a home, some sort of loan will usually be needed to cover the costs of buying a house as well as the price of the home itself. The median home price in the United States is approximately $215,000(and decreasing), and since the vast majority of Americans don’t have that kind of cash lying around, they borrow money, usually in the form of a mortgage loan. An FHA loan is a mortgage loan that is insured by the U.S. government. Since the government insures the mortgage loan, lenders will be more willing to give out loans with fewer requirements and stipulations. With an FHA loan, thegovernment doesn’t actually give you the mortgage loan, a lender does (lenders can be institutions like banks or mortgage brokers). Any money used to pay for the home will come from the lender, not the U.S. government – the government simply insures that loan so that lenders feel safer about lending to certain people. With government insurance, lenders will give out more loans, since they know that if a borrower can’t pay the loan, the government will step in and cover it.

The "FHA" in "FHA loan" stands for the Federal Housing Administration, a government agency which is itself a part of the Department of Housing and Urban Development (HUD). FHA was created in 1934 as a direct result of the Great Depression, one of America’s worst economic downturns. During the Great Depression, millions of Americans were unable to make payments on their debts, the banking system failed, and millions of homes were foreclosed (a process in which a lender takes back a house to sell on an open market).

To combat the growing problem of indebtedness and a lack of homeownership during this period, the United States government set up the FHA, which was designed to provide struggling families with loans so that they could purchase a home. The Great Depression ended in the late 1930s, and since then FHA loans have been used basically for the same purpose: to provide low- and moderate-income families with affordable housing. FHA loans are also great for first-time home buyers and those who have credit problems.

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