FHA stands for Federal Housing Administration, a group created in the National Housing Act of 1934 and merged into the U.S. Department of Housing and Urban Development (HUD) in 1968.

Mortgages backed by FHA are often called “FHA loans” even though it’s somewhat of a misnomer.  A more appropriate name would be “FHA-insured” loans because that better describes the FHA’s function. 

The FHA is not a lender.  The FHA is an insurer of loans and because of the FHA’s guarantee, mortgage lenders are willing to make loans to Ohioans on which they would otherwise pass.

Mortgage rates on an FHA-insured loans usually track about 0.250% higher than on comparable conforming loan, but because of new risk-based, mortgage rate adjustments from Fannie Mae and Freddie Mac, FHA loans suddenly look super-cheap.

Borrowers with sub-680 credit scores and a 10 percent downpayment, for example, are getting mortgage rates close to 1 percent lower than on comparable conforming loans.

The FHA also offers a few attractive features:

• 3 percent downpayment allowable
• Very liberal “seller contribution” policies to defray closing costs
• 30-year fixed rate mortgages

FHA loans aren’t for everyone and not every mortgage lender is approved to offer FHA-insured products. 

Home buyers with credit scores under 720 should talk with their loan officer to see if FHA loans are a responsible fit for their long- and short-term financial goals.

Source
FHA Loan
Wikipedia, April 1, 2008
http://en.wikipedia.org/wiki/FHA_loan