Why FHA Loans Are Cheap Home Loans

FHA loans are loan insured through the Federal Housing Administration.  These loans are not held by or funded by the FHA, but rather funded by commercial lenders (they must be approved prior to providing these loans.) What makes them different is that the lender is able to take an “insurance policy” out on the loan. If the borrower of the loan defaults, the lender is able to recoup some of their invested money by selling the property and by collecting an FHA insurance payment.

What Does This Mean To You?

As you take into consideration how the FHA works, consider how it affects you, the individual hoping to purchase a home in a troubled economy. There is no doubt: now is the time to buy especially if you have a good credit score, a down payment and want a good deal. Home prices are at much lower prices than they were just a few years ago. But, what if you want to save even more money on your home loan purchase?

To get cheap home loans, consider FHA loans. Because these loans have an insurance policy on them, of sorts, the lender is less at risk of losing their investment in the loan. With the opposite type of loan, a conventional loan, there is no guarantee that they will be able to make up this cost. Even if they foreclose on the property of a default borrower, they still take thousands in losses.  To the lender, the risk of an FHA loan is lower and therefore they are not as worried about the loan. In return, interest rates are lower.

Lower Risk = Lower Interest Rate

There is no way to know what your interest rate will be until you apply for or at least talk to an FHA loan specialist. You are likely to get a far lower interest rate with an FHA loan than you would if you obtained a conventional loan.

Where’s The Catch?

Many people fear a catch. What is behind this type of loan? You still have to qualify for the home loan. You still have to have a down payment for the home loan, but it is far lower than those f conventional loans. You do have to have a decent credit score. The days of having a very low credit score and no down payment and still getting a home loan are gone.

Nevertheless, FHA loans are solid investments. They can help more people to qualify and they are, by all accounts, the cheap home loans you are looking for.

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