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Mortgage Dictionary -> Fha

Federal Housing Administration

When it comes to mortgages, you may think it's all about the lender and the borrower. That's not the case, though, as outside agencies and corporations are also involved in the mortgaging process. One organization that plays a crucial role when it comes to mortgaging is the Federal Housing Administration. In this article, you'll learn what they do, why it's important and how it's funded.

What is the Federal Housing Administration?

The Federal Housing Administration (FHA) is an organization run by the government that provides mortgage insurance on loans. This insurance is only provided for loans that are made through FHA-approved lenders. Lenders who are not approved by the FHA must get their mortgage loans insured by other corporations, such as Freddie Mac and Fannie Mae.

Why is FHA Mortgage Insurance Important?

When a lender loans out money to a borrower, they are taking the chance that the money may not be repaid in full if at all. Because mortgages tend to be quite costly investments, on the part of the lender, FHA mortgage insurance can literally be a lifesaver if the borrower defaults on the mortgage. If this happens, the FHA will pay a claim to the lender which will help them to recoup their loss.

How is FHA Funded?

You might be thinking that the FHA is costing you, the taxpayer, money. Fortunately, that's not the case, as the FHA is entirely self-sufficient. The FHA relies on the proceeds from mortgage insurance paid by the homeowners to fund the program. So if you've ever wondered why you're paying for mortgage insurance, this is why and it's a good thing, because it provides a layer of protection for both you and the mortgage company.

How Long Has FHA Been Around?

The FHA has been around for a very long time since 1934. It was created due to the housing industry being in bad condition because of the Great Depression. The FHA became a part of the Department of Housing and Urban Development's Office of Housing in 1965.