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A residential mortgage which is insured by the Federal Housing Administration. When a loan is insured by the FHA, a lender is insured against loss, and can therefore lend a larger percent of money to the borrower. This is a very popular type of loan because the required down payment is very low. A FHA mortgage is ideal for people who cannot afford to make a large down payment but are looking for a low rate.
Bankapedia's TakeFHA had fallen out of favor for the past few years of the big mortgage boom, mainly because the FHA’s loan limits were not keeping pace with the increase in housing prices. As the housing market collapsed and sub-prime companies shut their doors, FHA started to become everybody’s friend. Kind of like that buddy you only call when you need a favor. As of 2009 most mortgages are being done as an FHA loan. Conventional lenders are requiring down payments of 10 and 20% - which in this economic climate, most people dont have. FHA allows borrowers to finance up to 96.5% of their home. While FHA Loans may seem like a good answer, they do have their drawbacks. They can typically be more paperwork intensive than standard loans. They require an appraiser licensed to do FHA appraisals, and as mentioned before there are set limits on loan size. Limits are determined by location and average overall housing pricing in that area. The FHA limit will be higher in say, San Francisco, CA than in Gary, IN.
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