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Securing a home loan can be a daunting preposition. Many people are declined for a conventional mortgage loan. Conventional loans often have very stringent credit guidelines and require a significant down payment making it difficult for a lot of people to qualify for them. Poor credit ratings, recent bankruptcies, foreclosure, low income, or the lack of a long term credit history, are the most common reasons customers are declined for a traditional home loan. Many people, like recent college graduates, do not have the funds needed for a down payment or closing costs. Where can these people turn to finance their homes?

For many decades now, FHA home loans have made it possible for almost anyone to own a home in America. The Federal Housing Administration (FHA) operates within the Department of Housing and Urban Development (HUD). With a FHA loan, specifically loan 203(b), the perspective buyers can finance up to 97 percent of the purchase price. The 203(b) is a standard loan with a fixed rate for owner occupied homes. This program also allows the buyer to fund the full amount of the closing costs through a government grant, a non-profit organization, or a gift from a family member. The 203(b) is the only loan that allows this benefit.
Lenders are secure about implementing the FHA programs because the loans are insured by required mortgage insurance that is provided by the FHA. This protects the lender should the purchaser default on their payments. The mortgage insurance premium is rolled into the monthly payments and is calculated at a very small percentage of the total loan. The monthly mortgage insurance payments are made for only five years or until the principle loan balance reaches seventy-eight percent. The mortgage insurance on a conventional loan is calculated at a higher rate.
There is not an income requirement to qualify for a FHA loan. However, each state has debt to income ratio guidelines to make sure the monthly payment is affordable. The ratio is calculated by analyzing monthly income and expenses. This is done so that people do not end up in a house that they can not afford. Although the FHA does limit the amount of the loan in most states, it also provides partial mortgage insurance refunds in some circumstances.
Contrary to popular belief, FHA loans are not limited to first time home buyers. As long as the loan criteria are met, anyone is eligible for a FHA loan regardless of the number of homes they have already purchased. Securing a loan is not that difficult. The availability of FHA loans help make purchasing a home less daunting.

Learn more about this author, Grace Mirchandani.
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