June 6th, 2010 | 
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The FHA is a government funded agency, perhaps better known as the Federal Housing Authority to some of you. This agency was specifically set-up to help provide loans to people who want to buy property, but do not have the means to raise funds through conventional lending methods, such as that of banks. FHA loans for people with bad credit has both its up and downsides, but they can make it a more simple and affordable way to own your own home.
One of the most important factors when considering making an application for an FHA mortgage is that if you have a poor credit rating you will not be penalized. Conventional lending houses, because of the risk involved, have made it common practice, to either not grant loans to people with bad credit, or charge them higher interest rates. If your mortgage loan is insure through the FHA, you are not penalized with higher interest rates, down payments are lower, and flexible terms of credit are available.
Because a loan is insured by the FHA the lender is offered better interest rates, as well as other more flexible loan terms. This in itself is beneficial and it means that just because your credit report does not look so healthy, you will not be denied a loan for a mortgage.
Working people face many obstacles when they are in the process of attempting to purchase a home. One of these obstacles is finding cash to secure the down payment and closing costs. FHA insured mortgages do not require large down-payments, often as little as 3% is required. The closing costs are also far cheaper than those of sub-prime loans.
There are many reasons why an FHA insured loan is beneficial, but you also have to understand that they have a downside. If the lender does not have the money for the down payment, this can be gifted to them. Second mortgages are also able to be originated simultaneously with the application for an FHA loan. Reserves are not needed for tax and insurance as they are with other mortgages, and if you decide to refinance your loan, no pre-payment penalties are incurred.
These are the benefits of an FHA insured loan, but bear in mind that an HUD approved counselor must be consulted prior to making applications of this nature as the down sides have to be explained to you also.
You should never apply for any mortgage loan that you will eventually not be able to afford. Even FHA insured loans are foreclosed on. The foreclosure rate in the US at present is as high if not higher than it has ever been, and this is principally being caused by the fact that people are no longer able to afford to re-pay their mortgages.
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