What Is the Federal Housing Administration (FHA)?
The Federal Housing Administration (FHA) is a branch of the U.S. Department of Housing and Urban Development (HUD) that insures private loans for buying and repairing homes. The FHA insures loans made by private lenders to borrowers who’d normally have a hard time getting favorable loans. The FHA assures the lender that if the borrower doesn’t pay back the money, then the FHA will. This lowers the risk for the lender and lets them loan to risky borrowers.
To access these benefits, the borrower is charged two insurance premiums. The upfront mortgage insurance premium (UFMIP) which is a once off charge and the Annual MIP which is actually de every month as an installment. The premiums provide the funds for the FHA to pay lenders from loans that have defaulted.