FHA mortgage insurance is a policy that protects lenders against some or most of the losses on a mortgage if the borrower defaults on the mortgage. FHA insurance is typically required on mortgages where there is less than a 20 percent down payment. The insurance is funded by a fee on the overall mortgage amount and a small annual levy on the loan amount.
FHA insurance is important, as it provides a mechanism to recover losses associated with default and ensures a continuing flow of money into the mortgage markets.
