Can anyone please explain how it works? Every explanation I find online seems so complicated and/or just wants to direct me to a lender. I just want to understand, not waste mine and a lender’s time :’)
Let’s say a potential house you’re interested in is listed for $200,000, if a hypothetical helps explain.
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FHA is a govt agency that protects lenders by supporting first time buyers. FTB are considered a higher risk by lenders. Lenders respond to risk by charging higher interest and more down payment, if they are willing to lend to FTB at all. Banks prefer low risk customers.
The fha protects lenders and buyers because the govt believes that homeownership is good for communities.
The fha does not lend money. Rather it makes it easier for these higher risk borrowers to get loans for homes by asking banks to create loans with easier/accessible loan requirements and agreeing to guarantee the banks won’t lose if the borrower defaults.
They also protect borrowers and lenders by requiring that the home meet certain standards and by encouraging programs in areas impacted by economic downturns and rural areas.
FHA backed loans are not always the best loans, but for some it’s the best way to purchase your first home.
Money comes from the lender which is why you are directed back to the banks. They have many types of loans or products. Each bank defines and manages risk differently so you have to seek different lenders to search different products, just like retail. There’s no one “fha loan”.
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