FHA First Mortgage

FHA First Mortgage. An FHA Loan is a mortgage loan insured by the Federal Housing Administration (FHA). The FHA does not provide the loan; rather, it insures the loan for the lender. If the borrower defaults, the lender can seek recourse from the FHA. This lowers the lender's risk and makes them more likely to issue a loan.

One of the benefits of an FHA-insured loan is low mortgage rates. For single-family homes, down payments can be as low as 3.50% percent, making it possible to afford a higher-priced home than with a more conventional 10 or 15 percent mortgage. The FHA can also help home buyers finance their closing costs, and even offers mortgage insurance.

In addition, the FHA does not allow lenders to charge more than one percent for origination fees (what lenders charge for putting together loan documentation), and has no prepayment penalties, meaning that if you pay off the loan ahead of schedule, you won't be penalized. As with other mortgages, the lender may ask you to pay points, which generally equals one percent of the total cost of the home.