Federal Housing Administration loans better recognized as FHA loans are loans that allow buyers to finance a home with as little as a 3% down payment. These loans originated in 1930, the era of the Great Depression. Foreclosures at this time sky- rocketed and these loans were created to provide some relief to those lenders by providing sufficient insurance.

These loans often help out first time home buyers who are unable to pay the higher percentage down payments that are accompanied with traditional loans. Borrowers who qualify exhibit a good credit history and proof of sufficient income to show the borrower is capable of paying a monthly mortgage, is capable of paying the minimum required down payment as well as closing costs. A borrower should have an analysis of their debt to income ratio to determine if they possibly qualify for the FHA loan.

Usually the monthly total housing costs (principal, interest, property taxes, and insurance) should not exceed 29% of the borrowers monthly income. Also, the borrowers total monthly cost, this includes total housing costs plus long term debt (credit cards and other loans), should not exceed 41% of the borrowers monthly income.

To apply for a FHA loan, the borrower should contact several lenders to find out if they offer FHA loans. It is strongly recommended that the borrower get pre-approved for a home loan so that they can shop for a home in the appropriate pricing range and speed the process of financing the home.

FHA loans are most beneficial to low to moderate-income families who are buying homes for the first time by lowering the costs of the loan process. The FHA loan is only applicable in the United States.

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