The Federal Housing Authority guarantees FHA mortgages (FHA). FHA-approved loans are designed to reduce the lender’s risk if the borrower fails to pay the mortgage. HUD created the program in response to the wave of foreclosures and defaults during the Great Depression in the 1930s. The government sought to stabilize the housing market with accessible and affordable credit by providing insurance to mortgage lenders.

FHA loans may be the best option for buyers wary of renting, buying their first home, having less-than-perfect credit, or requiring a lower down payment. You can borrow up to 96.5 percent of the total amount.