FHA loans are popular options because they allow borrowers to purchase a home with a relatively small down payment, and they are typically easier to qualify for than other loan types. While there are many advantages to FHA financing, they’re not the best option for everyone. If you have a good credit score and are able to make a 20 percent down payment, then a conventional loan might be a better option. Before deciding if an FHA mortgage is right for you, it’s important to understand what an FHA loan is and the possible benefits and drawbacks to this type of financing.
What is an FHA Loan?
An FHA loan is a mortgage that is insured by the Federal Housing Administration. The actual loan is funded by a traditional mortgage lender, but FHA backing means the lender is protected if the borrower defaults on mortgage payments. FHA-insured loans are less risky for lenders, allowing them to offer more lenient qualification standards. Because FHA loan programs offer easier qualifying guidelines than many other loan types, they can be a good option for borrowers who have poor credit or who may not have the funds to make a large down payment. Let’s take a look at some of the advantages and disadvantages of FHA loans.