FHA loans were originally created for the first time home buyer as an assistance program. FHA (Federal Housing Administration) began “backing up” or insuring certain loans for mortgage companies, savings and loans institutions, banks and other lenders to convince them to lend to first time buyers. The program worked so well, that it is now widely known and available.

It is important to understand that FHA does not issue the loan itself, a typical lender actually provides the loan, FHA merely insures the loan (in part at least) against default from the borrower. Thus, if a borrower stops paying their loan, the lender has the opportunity to file a claim with FHA to recover some or all of the money. As you might guess, this made lending to first time buyers and buyers with less than perfect credit more attractive to lenders. Lenders are exposed to less risk in lending to this type of buyer, and thus approved more loans.

Although FHA provides a greater opportunity for borrowers to obtain financing, it also requires more information / documentation prior to loan approval, such as:

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