Because of the way in which modern finance works, it is necessary to establish credit, in order to be able to enjoy all of the benefits associated with being financially stable. There are countless situations, in which it may be necessary to obtain valuable products or services, on credit. For that reason, it can be very troubling, to have a bad credit score, since credit scores are essentially a system for determining how wise it is to give you something on credit. If you have a very low credit score, it is perceived as unwise to give you something on credit, so if anyone will, it will likely be at a very high interest rate. Similarly, if you have a high credit score, you are more likely to receive better interest rates. This principle applies to buying homes, which is why so many people have to get bad credit home loans, instead.
Bad credit home loans may have an unappealing-sounding name, but they are actually an excellent way for people with low credit scores or other credit issues, to purchase their own homes, without being taken advantage of. After all, most loans offered to those with credit problems tend to be unfavorable, for the borrower, insofar as they feature high interest rates and large down payments, to make up for the fact that the borrower’s credit is not good. This may seem logical, but it is a bad idea, from the perspective of the borrower, to take out a loan with excessively high interest rates. In short, this will only put you into debt. On the other hand, a bad credit home loan, also known as an FHA loan, has reasonable interest rates, despite the fact that it is a viable option for people with credit problems.
The reason this is possible is the fact that FHA loans are the result of the Federal Housing Administration, or FHA. FHA loans are backed by a government institution, so the credit issues of the borrower are no longer a problem. The reason this is the case is the fact that the FHA provides a generous insurance policy, on all FHA loans. These insurance policies are intended to protect the lender from liability, in the event of foreclosure, which is a legitimate risk, when it comes to home loans. Since the risk of foreclosure is the excuse for charging high interest rates, lenders are not allowed to charge exorbitant rates, on FHA home loans.
So, since both the borrower and the lender are getting a pretty good deal, it is important that these FHA loans only be used for legitimate purposes. There are a few important stipulations, concerning what they can and cannot be used for. Because they are part of an institution responsible for helping people obtain their own housing, the FHA only backs loans, for people trying to purchase a primary residence, which they intend to live in, without renting it out. Any other reason for purchasing a property would not qualify.