What is an FHA loan?
An FHA loan is a loan that is insured by the Federal Housing Administration.
The FHA is not a lender, rather it is a loan program offered by lenders with certain features not found on other loans. The most important feature is that the FHA insures the loans, and that insurance makes these loans competitive.
The Federal Housing Administration has set up standards and guidelines that loans must meet before it will insure the loan. In some ways, these standards allow consumers to get loans they otherwise wouldn't qualify for. However, the proverbial "hoops to jump through" are in much greater number for FHA loans.
Because lenders, appraisers, and clients must jump through these "hoops," which basically amount to increased scrutiny and conservativeness, the interest rates and mortgage insurance rates on FHA loans are very competitive. In some cases they are lower than what the best qualified consumers could obtain on a conventional loan.
One current downside of FHA is the "loan limit." This means that for any given county, there is a corresponding limit to how high the loan amount can be. The conventional conforming loan limit is currently 417,000 dollars, whereas most FHA limits are significantly lower.
Recent market changes have led to the creation of FHASecure which allows families that are not able to make their payment on recently increased ARM payment to refinance into and FHA loan.