The FHA in "FHA Mortgage loans" stands for "Federal Housing Administration."The Federal Housing Administration is a government entity that insures mortgage loans that lenders fund (as long as they fall within the FHA guidelines). In other words the FHA is basically an insurance company, owned by the government, and insures lenders/banks against borrowers foreclosing on their mortgage loans.
The beginning of the FHA came about in the 1930's during the great depression. It was put in place to give the economy a shot in the arm by assisting low to moderate income families purchase homes.
Nearly seventy years later not much has changed (as far as FHA's purpose goes) and it should be of no surprise that FHA are three letters coming out of the majority of today's California home loan applicant's. In the very recent past, FHA loan limits (for the entire U.S.) topped out at $417,000 regardless of where one may have wanted to purchase a home. This made using FHA for a loan in higher priced states (like California and New York) where average home prices were much more than $417,000, nearly impossible.
The recent increase of the FHA loan limit, up to as high as $729,750, in many areas of the U.S., along with the collapse of sub-prime lending and more strict lending guidelines, has created a whole new market for FHA loans.
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