FHA Loans are home loans that are insured by the Federal Housing Administration. If a borrower on an FHA loan is unable to pay their mortgage, the government pays the lender for their losses.
FHA loans are designed for moderate income buyers who don’t have a large down payment available. Because the loan is guaranteed by the government, banks are able to make riskier loans at lower interest rates. The FHA loan guarantees are funded by mortgage insurance payments that each borrower makes as part of the loan payment.