What is the primary purpose of the FHA?

The primary purpose of the Federal Housing Administration (FHA) is to provide low-down-payment loans to homebuyers. Established in response to the housing market downturn during the Great Depression, the FHA aimed to encourage homeownership and stabilize the housing market. By insuring loans made by approved lenders, the FHA reduces the risk for lenders, allowing them to offer loans to borrowers who might not qualify under traditional lending standards due to factors such as lower credit scores or limited savings.

This focus on low down payments is key because it enables more individuals and families to achieve homeownership. Typically, borrowers can secure FHA loans with down payments as low as 3.5%, making it accessible for a broader demographic, especially first-time homebuyers.

While building homes and providing commercial mortgages are important aspects of the real estate market, they do not align with the FHA's primary mission. Likewise, although the FHA facilitates loans by insuring them, it does not engage in direct lending itself. This focus on facilitating accessible home financing through low-down-payment loans is what defines the FHA's role in the housing market.