What is an FHA loan?

First of all, ‘FHA Loan’ is a misnomer since, FHA never lends directly to any borrower. The loan is offered be lending companies/organizations/institutions such as housing finance companies, savings, loan associations, and banks. Therefore there should be no confusion that FHA offers any loan.

Now there are several reasons why FHA loans are becoming popular among first time home buyers. The first and most important reason is that it is easy for all to meet the FHA loan requirements. However, before discussing the causes of this popularity, let us first analyze the profile of first time home buyers, as follows:

Who are first time home buyers?

• 1. Young with little experience/newly married couple
• 2. Recently graduated college/recently joined employment.
• 3. Have regular employment
• 4. Have fixed income but little savings

These first time home buyers need a loan that:

• 1. Has an easy criterion to qualify
• 2. Asks for low down payment
• 3. Has low cost
• 4. Accepts less than perfect credit
• 5. To conclude the above, they need a loan that has flexible requirements such as FHA loan requirements.

The factors behind rising popularity and Key Features of FHA loans:

Therefore, any loan program that meets the above needs of first time home buyers would be highly popular and FHA loans exactly meet the specific requirements of first time home buyers. Moreover since FHA loans offer money not only to purchase a house but also to keep it. Therefore, FHA loans are becoming popular with first time buyers and have become a wise choice for most of the buyers. Infact, few of the key features of FHA loans, which enhance their popularity and usability for borrowers, are:

Meeting FHA loan requirements is easier: Usually, lenders have stringent lending criteria, which becomes very tough for most of the potential borrowers to qualify. However, it is much easier to qualify for FHA loans since mortgage insurance by FHA reduces risks of lenders, which in turn makes more than eager to offer loans to individuals and families.

Even Bad Credit is not a problem: In case of traditional loans, borrowers have to pay high cost, if they have poor or bad credit, which is not the case with FHA approved lenders. In case of FHA loans, even if you have foreclosure or bankruptcy, you can meet the requirements for FHA loans.

Low Downpayment – This is the most important attraction for first time home buyers. The downpayment for FHA loans is as low as 3% i.e. loans are offered up to 97%. Another attraction is that even the 3% down payment can be given by any of the family member, employer or charitable organization, which is not possible with conventional loans.

Cheap Loans: In most cases, FHA loans are cheaper than loans offered by traditional lenders. This is due to the reduced risk to lenders through mortgage insurance of loans by FHA.

FHA helps protect your home: In case of loans offered by other lenders, if you default in mortgage payments, there is only one solution-foreclosure, where as in case of FHA loans, foreclosure is the last solution.

Therefore, there are several factors behind the rising popularity if FHA loans. These factors influence the decisions of first time home buyers who in turn prefer FHA loan over many other conventional loans.

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