Federal Housing Administration (FHA)

What Is the Federal Housing Administration?

The Federal Housing Administration (FHA) is a federal mortgage insurer. It was created by the National Housing Act of 1934, during the Great Depression, to encourage housing lending and revive the construction industry. Since 1965 it has been part of the U.S. Department of Housing and Urban Development (HUD), led by a Federal Housing Commissioner who is also a HUD assistant secretary.

Before FHA, the Congressional Research Service notes, few mortgages exceeded 50% of a home’s value, and most ran five years or less. FHA insurance helped make the long-term, low-down-payment mortgage a standard American product.

How FHA Works

FHA insures the lender, not the borrower. An FHA-approved private lender makes the loan. If the borrower defaults, FHA pays the lender what is still owed. That protection makes lenders willing to offer loans they might otherwise decline.

• Single-family loans. Borrowers must invest at least 3.5% of the appraised value, a lower minimum than many other types of mortgages require. Borrowers pay mortgage insurance premiums into FHA’s Mutual Mortgage Insurance Fund, which pays claims. By law, the fund must keep a capital ratio of at least 2%.
• Multifamily loans. FHA insures loans to build or rehabilitate apartment buildings. One example is Section 221(d)(4), part of a section of the law written to help private industry house low- and moderate-income families. See FHA multifamily mortgage insurance.
• Other programs. FHA also insures loans for manufactured homes, home improvements, and hospitals and other health care facilities.

The 21st Century ROAD to Housing Act (Public Law 119-101), which became law on July 11, 2026, raised several FHA multifamily loan limits. It also allows HUD to set up an FHA pilot program to expand access to small-dollar mortgages.

Why It Matters for Workforce Housing

FHA loans are a common path to a first home for moderate-income workers. According to the Congressional Research Service, nearly 85% of FHA purchase loans in FY 2021 went to first-time homebuyers. Details are in FHA-insured home loans.

Criticisms and Limitations

FHA’s early history is part of the story of redlining. According to a Federal Reserve History essay, FHA was the architect of federally sponsored redlining from 1934 until the 1960s, because its staff judged that no loan was sound in a neighborhood that was, or might become, home to Black residents. Today, recurring policy questions include how much FHA should charge in premiums, the financial health of its insurance fund, and how large a share of the mortgage market a government insurer should cover.