FHA loans are so called because they are insured by Federal Housing Administration, only by federally qualified ones. These loans make it possible for low income citizens to borrow to buy their own home, something they normally can not afford to do. After private mortgage became popular, FHA loans begin to serve only who do not qualify for mortgages. 

FHA works like an insurance for lenders, not like lending it directly to borrower. As every possible lenders has different terms, the borrower needs to look for the best suited for himself. Lender will determine the risk considering the debt repayment history and income ratio of borrower, then decide if he is willing to lend or not. The insurance by government to the lender causes competition in interest rates, which most of the time means lower rates. Down payment for FHA loans is much smaller compared to other kinds of loans. at 3.5% and they do not need to come from a specific income, they can be paid by another member of family or by an organization etc.

As mentioned before, borrower do not have to score perfect credit to have FHA loans unlike usual mortgages. There are cases where bankrupt did not affect the FHA loan eligibility.

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Last update : 05-07-2009 00:13

Keywords : loan, Fha Loans

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