Foreclosures rates are on the rise on a massive scale because of the 2007 economic downturn. American homeowners are in dire need of some budget cutbacks. So many have taken the beating when salaries were reduced and many have lost their jobs when a string of companies started shutting down their operations especially those related to finance, real estate, and construction. Other industries have also done badly which is why the amount of layoffs were devastating. This leads to the stagnation of construction that in a vicious cycle is threatening the banks once again. In the midst of all these economic worries, the Obama administration has moved more funding to reinforcing the efforts of FHA or Federal Housing Administration whose main goal is to help people be able to afford home loans. So what exactly are the loans that they give out? What is FHA loan?

The first question that most people have is "are these loans government loans?" The answer to this is no, not really. The FHA, as created during the great depression, was meant to make people buy more houses by making loans more available and accessible even to those cannot get traditional loans because of their undesirable credit scores or income. What the FHA did was to pay the insurance of certain private lender's loan offers. By paying the insurance, they were able to lower the risk for the lenders and thus the lenders were free to give out more loans. Therefore, an FHA housing loan is not a government loan, it is just a government insured loan.

Because of this, the borrower is given distinct advantages. Even if there is a bankruptcy on the borrower's credit history, he or she will not be automatically disqualified. However, the bankruptcy should at least be two years old assuring that the borrower has had enough time to recover. This makes it more accessible to people who need loans but cannot get traditional ones. Another thing that makes this kind of federally insured loan is that they do not look at one's current credit score as the main basis for comparison. Instead, one's whole scorecard will be examined to see if you are worthy of being given a loan. Thus, people who have been victims of the current economic downtrend are able to get a loan despite their not so good score.

The loan also has low interest rates which is of course what everyone wants. Those traditional loans have such high interest rates which is the leading cause for why the homeowners are really struggling with their payments. Again, since the loans are already insured, the lender does not have to worry much about low interest rates. Also, the down payment of an FHA home loan is very low as compared to other loans. This

Lower interest rates. Normal subprime lenders charge higher interest rates to make up for the compounded risk of the loan. Because FHA insures these loans, they only incur lower risks for lenders, thus the lower interest rates.

So what is FHA loan? It is an affordable federally insured housing loan that can be acquired rather easily because the requirements are lower than traditional mortgages.