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Who Provides the Funds for FHA Loans?

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An FHA loan is a home loan insured by the Federal Housing Administration and which is provided by the lender approved by the latter.

The loans of such kind allow people with low income borrow money for the house purchase. They are also popular due to small down payment requirements, you can get an FHA loan with as small as 3,5% amount. By the way, you can check how to apply for an FHA home loan and decide whether you are eligible.

Most FHA programs were initially sponsored by the government, but the main aim was to make them self-supporting, based on insurance premiums paid by clients. To say it differently, in case a borrower fails to pay back the mortgage, FHA will repay it to the lender.

When the client defaults on an FHA loan, the insurance premium is used to compensate the obligations. Due to the governmental guarantees, the lenders agree to provide large mortgage loans and it makes it easier to buy property.

Though FHA loans are not perfect, but they definitely may become a nice fit in the situations, when the borrower lacks means for 20% down payment and guarantees.

Read also How much money you need for the mortgage? to decide on the amount to request in a loan.