Federal Housing Administration (FHA) Loans are home loans insured by the Federal Housing Administration. FHA insured loans are very attactive for number of reasons. Anyone can qualify for a FHA loan, but these loans are designed for and are most appealing to low- to middle-income families -- especially first time home buyers.
FHA loans are loans insured by the Federal Housing Administration. The FHA is not a lender itself. You still need to go through a traditional FHA approved lender.
FHA loans allow hopefully homeowners with lower credit scores to secure home loans. Usually you can secure a home mortgage with a credit score not lower than 500. FHA insured loans also require lower down-payments usually as low as 3.5%. Traditional mortgage down payments can be upwards of 10%. Additionally FHA loans typically have lower fixed-rate interest rates. FHA insured loans represent a lower risk to the lending company so they are willing to offer more attractive rates.
FHA Loans seem great, but there is a downside. You must pay annual insurance premiums that are between 0.4% and 0.8% depending on the price of the home. Additionally, there are maximum loan limits the vary by region. Most FHA loan limits in rural areas are around $200,000 to $300,000. In more expensive urban areas the limits are as high as $600,000. These limits are reasonable but can still restrict you buying power.
Overall, FHA loans are very attractive to first time home owners, anyone with a lower credit score, and people with low- to middle-incomes. If you fit that description and are looking to buy a home, federally backed mortgage insurance may be right for you.