Sara Routhier, Managing Editor of Features and Outreach, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming worl...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Sep 14, 2011

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The Federal Housing Administration (FHA), a program through the U.S. Department of Housing and Urban Development, was established in 1934, just after the Great Depression. It offers insurance on mortgage loans so that lenders will have a guarantee that they’ll get payment even if the borrower defaults.

Here are five advantages FHA home loan borrowers receive.

  1. It is generally easier to qualify for an FHA home loan because the federal government’s insurance on the mortgage makes the risk for lenders much lower. This means that borrowers with bad credit have an opportunity to get a home loan despite their credit problems – unlike with a conventional loan. A minimum credit score is generally not required.
  2. For first-time home buyers who haven’t built up their credit, FHA lenders often use bills or bank statements in lieu of a credit report.
  3. The FHA loans offer a lower down payment than other kinds, charging lenders only a 3.5 percent payment. Another way the FHA makes this payment easier is by allowing family members, employers or charitable organizations to pay the down payment, which is not permitted in most other cases.
  4. These loans often come with lower interest rates because of the federal insurance.
  5. In addition to helping borrowers secure a home loan, the FHA also ensures that the homeowner keeps his or her home years down the line. The program offers tools to avoid foreclosure for borrowers facing financial struggles.

An FHA-backed home loan can be obtained from any FHA approved lender, can offer mortgage opportunities to borrowers who might not otherwise qualify or be able to afford to purchase a home.