Backed by the national government, Federal Housing Authority, or FHA, loans make it simple for borrowers to receive loans to purchase homes. These loans have historically benefitted lower income Americans who wish to purchase their first home. These borrowers, who may find qualifying for a conventional mortgage difficult, find that the relaxed credit and income requirements open the doors to homeownership.

FHA Loan Credit Requirements

One of the defining characteristics of the FHA-backed loan is the relaxed credit requirements that make it easier for many borrowers to get home funding. The FHA does not grant loans. It guarantees the loan for lenders that participate in the program. Borrowers with no credit history, poor credit, foreclosure and past bankruptcy can qualify for FHA-backed loans. While the borrower must maintain a favorable credit profile prior to applying for the loan, lenders look at the overall credit profile and evaluate creditworthiness based on the total picture instead of basing approval on specific scores.

FHA Down Payment Requirements

Unlike conventional mortgages, FHA borrowers can qualify for a mortgage with a down payment of as little as 3%. While most conventional lenders require a 20% down payment or more, FHA lenders offer the advantage of lending to borrowers who may not have significant capital for a hefty down payment. In addition, borrowers may use gifted funds as a source of the down payment---something that most conventional lenders don't allow. There are also down payment grant programs that are backed by the federal government and allow borrowers to qualify for larger loan amounts.

Getting an FHA-backed Loan

The first step in getting an FHA-backed mortgage is to find a qualifying lender. The Department of Housing and Urban Development (HUD) maintains a listing of lenders that offer FHA loans. Many banks and credit unions also offer the funding, and can assist you with your home purchase. In order to qualify for a FHA loan, you must locate a home that is within the allowed limits for funding. The FHA allows borrowers to maintain a higher debt to income ratio when buying a home. The cost of the mortgage payments, along with your other monthly recurring debt must not exceed 43%. This is a contrast to the 38% debt to income ratio that conventional lenders require.

Getting a home loan can be a challenge for many buyers. With a weakened economy, many FHA lenders are seeing a spike in the number of homeowners that are applying for loans. FHA loans can provide you with the funds you need to purchase a home, and relaxed credit and income requirements make it easy for many borrowers to obtain a mortgage. Find a FHA lender and get started on the path to homeownership today.