FHA loans are backed by the Federal Housing Administration, an agency withing HUD. Although the loan is insured by the FHA it is not backed by them and it is brokered just like any other loan by mortgage companies. The program is nothing new. It was first rolled out after the great depression due to the high default rate on bank mortgages. With the recent bust in the sub prime mortgage market it is expected that FHA home loans will become very popular in the next few years as mortgage lenders start to see the backlash of their shady lending techniques. This loan program is geared towards Americans with low incomes and first time homebuyers.



One of the largest benefits of FHA loans is the fact that borrowers are required to make a downpayment of just 3% of the purchase price. Conventional loans generally require a downpayment in the neighborhood of 20%. FHA interest rates tend to be slightly higher than normal mortgages but this sacrifice often makes since for buyers who cannot qualify for traditional mortgage terms.

Among the other advantages to FHA home loans are:

-Bankrupcy does not automatically disqualify you! If your bankrupcy was over two years ago and you have a good credit history from that point on, it is likely you will still qualify.

-As compared to normal mortgages you might qualify for, FHA mortgages will have a lower interest rate. Lenders can afford to give you a better deal because you have a pretty rich cosigner--the Federal government!

-A downpayment is required, giving you equity in your home and protecting you against going "upside down" in your new loan. Going upside down refers to the fact that you owe more than your home is worth.

-Credit is much less of a factor in FHA loans than in conventional mortgages. The FHA creates a so-called "scorecard" that measures you financial ability across the board and takes your current situation into account more than your past.

Once you have an FHA mortgage on your home you now can qualify for streamline refinances in the future! This may not sound like anything important but it makes the refinancing process much easier. Streamlining means that less paperwork is involved with your loan and it costs less money. Streamline refinances come in two types. First of all, the closing costs can be rolled into the loan and you are not required to lay out any cash. The second method is for homeowners that do not have sufficient equity to refinance but want to take advantage of new lower rates. In this type of streamline refinance, the lender pays the closing costs as long as the new loan amount does not exceed the amount of the loan that is currently owed on the property.

If you decide to seek out an FHA mortgage, the first step is research. Although you now know the basics of why an FHA loan is helpful there are many more detailed qualifications that you should research. Visit the main FHA website to learn more.