Real Estate Glossary > F > Federal Housing Administration Loan Definition

One of two types of alternatives to a conventional loan A mortgage loan not insured by any government program and follows guidelines set by the government-sponsored institutions Fannie Mae and Freddie Mac. (the other is a Veterans Affairs (VA) loan A special type of loan backed by the government and only available to veterans of the US military and surviving relatives. ), FHA loans are insured by the Federal Housing Administration A government agency that provides insurance for loans granted by FHA-approved lenders throughout the US. ; if the home-buyer can't pay the loan, the government pays the lender for any losses. Because of the government's insurance, an FHA loan requires only a 3.5% down payment, and is available to home-buyers with credit scores as low as 620. Each mortgage lender, bank or broker will offer different rates, terms and fees for FHA loans, so it's best to get Good Faith Estimates An estimate of a loan's total costs, including interest, principal, mortgage insurance and fees, which lenders are required to provide borrowers within three business days after a borrower submits a loan application. from a number of different places to find the best loan for you. As private mortgage insurance This insurance protects the mortgage lender against loss if a borrower defaults their loan. Borrowers with a down-payment less than 20% are required to purchase mortgage insurance. has become hard to obtain and rates have increased, FHA loans have become more popular. Nearly every lender, from Bank of America to Wells Fargo, has been qualified by the federal government to offer an FHA loan. To pay for FHA insurance, the buyer is charged an up-front 1.75% mortgage insurance premium (can also be financed into the monthly mortgage payments), along with an insurance premium as part of the home-buyer's monthly mortgage payments.

To qualify for a FHA loan, the home-buyer must be employed and have avoided bankruptcy for the past two years, and foreclosure for the past three years. A property purchased using an FHA loan must be appraised by an FHA-approved appraiser. The government also limits the size of FHA loans, with different limits for different areas. Due to these requirements, some sellers would rather not see buyers with FHA funding because the appraisal The estimation of a home's fair market value by a licensed appraiser based on comparable recent sales of homes in the neighborhood. Loan underwriters compare the appraisal price to the purchase price of the home to ensure that the value is equal to or greater than the purchase price. and underwriting process An individual working for mortgage lenders and brokers who determines whether or not a borrower's loan is approved. can be more involved than with conventional loans. In addition, some condo building homeowners associations A group that manages a shared housing complex, establishes guidelines and provides funding for repairs, grounds maintenance and security for the building by collecting money from the homeowners in the community. aren't approved to consider borrowers with FHA financing due to an older law in the association's covenants, conditions and restrictions document that gives the association a "right of first refusal" that allows them to deny a prospective buyer. This law violates the Fair Housing Act A law enacted as part of civil rights legislation that prohibits discrimination of home sales, rentals and financing based on race, color, national origin, religion, sex, familial status or those with disabilities. established by the Department of Housing and Urban Development (HUD) A government agency that enforces fair housing laws and controls the Federal Housing Administration, the main insurer of non-conventional mortgage loans. The agency also issues standard documents that must be included in every real estate transaction in the US. , the government agency that controls the FHA, which provides funding for FHA loans.