FHA Loan Calculator

An FHA loan is not made by the government — it is an ordinary mortgage from a private lender that the Federal Housing Administration insures against loss. That guarantee is what lets participating lenders offer more flexible terms than they otherwise would: because the FHA absorbs much of the risk if a borrower defaults, lenders can approve buyers with smaller down payments and less-than-pristine credit than a conventional loan typically requires.

In exchange for that flexibility, an FHA loan carries its own mortgage insurance, paid by the borrower, that funds the program insuring the lender — a cost structure that is different from, and often longer-lasting than, private mortgage insurance on a conventional loan.

FHA mortgage insurance comes in two separate pieces, both set by HUD and both distinct from the interest rate on the loan itself.

The program was built around a specific gap in the mortgage market, and it still serves broadly the same borrowers today.

Because FHA MIP can run far longer than conventional PMI, borrowers who start with an FHA loan often plan an exit from the start.

The FHA was created by the National Housing Act of 1934, at a moment when the private mortgage market had effectively seized up: short-term loans with large balloon payments were coming due just as homeowners were least able to refinance them, and lenders had little appetite to write new mortgages at all. Insuring lenders against loss was a deliberate way to get mortgage credit flowing again without the government directly lending the money itself.

The program is credited with helping popularize the long-term, fully amortizing, fixed-rate mortgage as a mainstream product, alongside the government-sponsored entities created around the same period — a structure that had barely existed before the 1930s and has since become the standard way homes are financed in the United States, FHA-insured or not.