The Federal Housing Administration (FHA) is a government agency that provides mortgage insurance on loans made by FHA-approved lenders. The insurance protects the lender against the risk of default by the borrower. The FHA was created in 1934 as part of the National Housing Act as a way to encourage lenders to make home loans to people with lower income or less-than-perfect credit.
FHA loans have more lenient credit requirements and lower down payment requirements than conventional loans. This makes them popular among first-time homebuyers and people with lower incomes. Borrowers with FHA loans are required to pay mortgage insurance premiums (MIP) which can be financed into the loan or paid upfront.
FHA loans are also popular for refinancing, for those who want to make improvements to their homes, or for people who want to convert their adjustable-rate mortgage to a fixed-rate loan.
The FHA has certain loan limits based on the median home price in the area, and also has a maximum loan amount which is currently $822,375 for single-family homes in most areas.