All about FHA mortgage loans.

The FHA mortgage program was established by the government in 1934 to improve the existing
housing standards and conditions. Before this time, home buyers usually had to have at least 50%
of the total cost of the house as down payment, and payments were only stretched out between 1-5
years. FHA stands for Federal Housing Administration, which is a government corporation
established strictly for improved housing conditions for Americans.

An FHA mortgage can be an attractive proposition for many first time homebuyers, as down payment
requirements for an FHA mortgage can be as low as 3%. However, FHA mortgages can be taken out by
any homebuyer, whether this is their first house or not. The only stipulation is that a purchaser can only
have one FHA mortgage at a time.

The FHA does not lend the money to a buyer, it simply insures that the total mortgage will be paid to the
lender in the event that the buyer defaults. It is always up to the private lender (bank, credit union, savings
and loan) to decide whether or not they will lend the money.

FHA mortgages typically do not require the homebuyer to pay more than 3-5% of the total mortgage amount
as down payment. Unlike traditional loans, this money may also be a gift to the homebuyer, and does not
need to be secured as the homebuyer's own money. Often, there are "points" associated with the FHA
mortgage that are usually worth about 1% of the total mortgage value. These points are paid to lenders in
order to help lower the interest rate of the mortgage.

Borrowers will also have to pay PMI (private mortgage insurance) on the mortgage. PMI is used to insure
the total of the mortgage will be paid in the instance of a default. A PMI usually will be put into effect until
20% of the mortgage has been paid off.

FHA mortgages are known to have no mortgage value cap. In other words, you can take out an FHA
mortgage for $150,000 to $300,000 and up without any restrictions other than your credit applicability.

Closing costs on FHA (or conventional loans) usually run between 2-3% of the total mortgage amount and
are the responsibility of the buyer. However, they can be financed into the total amount of the mortgage and
paid off accordingly.

First of all, to be approved for an FHA mortgage, you must first have a satisfactory credit history showing your
commitment to maintaining and paying off debts in a timely manner. There are also relatively strict income
requirements, and you must be able to prove that the total monthly mortgage payment will be less than 29% of your
monthly income. The number arrived at after multiplying your total monthly income with 29% is referred to as PITI.
The PITI amount is the highest amount that your monthly mortgage payments can be, and this includes principle,
interest, property taxes, and insurance. As well, your total long term debt (car loans, credit card balances, etc.) added
with the monthly PITI cannot be more than 41% of your total monthly income.

While these numbers may seem a little stringent, they are actually more lenient than traditional mortgages.
Combining the decreased down payment amount required with an FHA mortgage, this type of mortgage becomes
even more desirable for many people.