What Is an FHA Loan?

A FHA loan is one which is insured by the Federal Housing Administration. FHA does not actually loan the money itself, but rather insures home mortgage loans issued by banks and other FHA-approved lenders so that the lender has reduced risk in the case of default by the borrower.

As of 2014, FHA loans require a 3.5 percent down payment. In addition, borrowers can have less than perfect credit and still qualify for an FHA loan. FHA loans do require mortgage insurance, for which the borrower pays two premiums, one upfront and one as an annual premium that is charged monthly. Maximum loan amounts for FHA loans vary according to state and county.