Unless you are in the wealthiest part of the nation, you aren’t able to purchase a home outright. Home prices have increased so much that it’s nearly unheard of now to buy a house without getting some sort of loan or mortgage. The amounts of different options available are staggering and can be somewhat daunting if you don’t have the requisite financial experience. One of the best and most popular loans available is an FHA home loan. So what is an FHA home loan?
What Are FHA Home Loans?
There’s a department of the Executive Branch that’s known as the Department of Housing and Urban Development, or HUD. One of the agencies in HUD, the Federal Housing Administration, exists primarily to facilitate affordable housing for Americans. The FHA does not directly offer these home loans, however. The FHA insures the loans, which are in turn offered by banks. If you want to find FHA home loans in Charlotte, NC, you’d have to check local banks instead of calling the federal agency.
Why Use an FHA Insured Loan?
If it was a decade ago, you probably wouldn’t want to. During the housing bubble, and largely causing the housing bubble, home loans were offered at unrealistically attractive rates. FHA loans were restricted by federal regulations, whereas other loans could offer whatever rates they wanted and insure any price property. When the housing bubble burst, however, a few different things happened. For one, all of a sudden, those attractive loans weren’t being offered anymore. With people defaulting on these loans left and right, there was no way that a bank would get behind such risk. FHA rates, by staying the same in a swiftly changing market, soon became one of the best deals consumers could be offered. At the same time, home prices plummeted because no one was buying anymore. Because one of the restrictions on FHA loans is the cost of the house that the loan is being offered for, lower house prices meant more loans could be covered by the FHA. Before the bubble burst, only 3% of loans were FHA insured, now, it’s more like half.
One of the most attractive things about the FHA loans is just how accessible the loans are. You can qualify for such a loan even if your credit isn’t that great. Even more important to many potential homeowners, an FHA loan allows for a down payment on a home as low as 3.5%. This means that more potential homeowners that don’t have large amounts of wealth are still able to get such a loan and purchase a home.