About the FHA
The Federal Housing Administration (FHA) provides insurance to FHA approved lenders. Lenders bear less risk by offering FHA loans to borrowers because if the borrower stops paying their loan or defaults on their mortgage payments, the Federal Housing Administration will pay the approved FHA lender a claim which reimburses the lender for most of the losses incurred.
For this reason, FHA approved lenders can offer mortgage loans to consumers at terms that are far more attractive than those of a conventional lender. FHA lenders can offer mortgage loans at rates just as low (or lower) than conventional loans, but require less money for a down payment and will qualify borrowers with a lower credit score.
Why does the FHA secure these approved FHA lenders against losses? By encouraging lenders to issue mortgage loans to responsible borrowers who may not be able to qualify for a loan with a private bank, FHA loans offer an affordable opportunity for a wider range of borrowers to buy a home and refinance; this stimulates overall economic growth.