An FHA mortgage loan is a loan insured by the US Federal Government. In the event that a borrower can no longer make payments on his/her mortgage and ends up in default the Federal Government must pay the bank or lending institution for the mortgage. FHA is an acronym for Federal Housing Authority, which is a program run by the department of Housing and Urban Development (HUD). The FHA mortgage loan division is one of many federal housing programs run by HUD.

An FHA mortgage loan can be easier to get than a conventional loan because the US Federal Government backs it. The FHA mortgage loan program was initially set up to help lower income Americans borrow money to purchase a home that they would not otherwise be able to afford. The program began in the 1930’s Great Depression era when foreclosure rates and loan defaults rose dramatically. The FHA mortgage loan program’s intent was to provide lenders with sufficient insurance to protect their assets.

Although initially government subsidized some FHA programs, the goal was always to make the program self-supporting from the insurance premiums paid by borrowers. In time, the private mortgage insurance sector came into play, and now the FHA primarily serves people who cannot afford a conventional down payment or otherwise do not qualify for private mortgage insurance.

Today, many conventional mortgage loans require down payments in the range of 10%-15% of the purchase price of the home. With an FHA mortgage loan, the buyer need only provide a 3% down payment of the home, and that money is allowed to come from a family member, an employer or even a charitable organization. Most conventional loan programs don’t allow this type of flexibility.

To qualify for an FHA mortgage loan a buyer must meet certain criteria: 1) have a stable source of income from a reliable job 2) have a good track record of paying bills on time 3) have few outstanding long-term debts 4) have the ability to pay a monthly mortgage plus additional costs. Also, the FHA requires that monthly mortgage payments not exceed 31% of gross income. Another considered factor is that the monthly mortgage payment plus adding in non-housing expenses, can total no more than 43% of income.

An FHA mortgage loan can be procured in Fixed Rate Mortgage terms of 15-year or 30-year type or Adjustable Rate Mortgage terms of balloon or two-step type. Each variety of terms and types has advantages and disadvantages and should be discussed with your lender to determine what terms and types are right for your specific financial situation. With an FHA mortgage loan you also have the ability to pay off your mortgage early without incurring any prepayment penalties.

The maximum FHA mortgage loan that you can get depends on where in the country you live. Each county in the US has its own loan limits that vary depending on local housing costs. Because the maximum loan limits are based on the average home prices in a specific county, they are periodically subject to change as the market rises and falls. Your lender is the best source of information on the current maximum limits of an FHA mortgage loan in you particular area. If you think an FHA mortgage is right for you, speak to an FHA approved lender today to get qualified and start the application process.