What type of loan allows for lower credit scores compared to conventional loans?

FHA loans are designed to be more accessible to a wider range of borrowers, including those with lower credit scores. The Federal Housing Administration insures these loans, which encourages lenders to offer more favorable terms to borrowers who might otherwise struggle to secure traditional financing. This government backing mitigates the risk for lenders, enabling them to approve loans for individuals with credit scores that would typically disqualify them for conventional loans.

In contrast, conventional loans usually have stricter requirements, including higher credit score thresholds, which makes them less accessible for borrowers with credit challenges. Subprime loans, while they may offer options for borrowers with lower credit, often come with higher interest rates and unfavorable terms, designed to compensate for the increased risk. Bridge loans are temporary financing solutions designed to bridge the gap between the purchase of a new property and the sale of an existing one and do not particularly focus on credit score flexibility. Thus, FHA loans represent a category that directly caters to individuals with lower credit profiles, making them an effective option in this context.