Federal Housing Administration loans, or FHA loans, are low-interest mortgage loans insured by the federal government through the US Department of Housing and Urban Development. As such, the loans feature greater security for lenders in addition to competitive interest rates, lower down payments and credit requirements that may be less than your average low-income earner or first time-home buyer.

Developed during the Great Depression to boost home-ownership, the flexibility of the loan’s requirements has ushered many low-to-mid-range-income buyers to seek FHA-insured loans amidst a tougher mortgage market. While eligible borrowers must prove sufficient income and a reasonable credit score, the FHA lenders are generally considered to be more lenient than many of the conventional lenders.

Additionally, through the American Recovery and Reinvestment Act of 2009, FHA-insured loans now offer loan limits up to $625,500. FHA mortgages can be fixed-rate loans, adjustable rate loans and purchase/rehabilitation loans; check out the FHA’s website for more information on insured loans.

Advantages To FHA-Insured Loans:
•    Down-payment as low as 3.5%
•    Housing debt-to-income ratio not to exceed 31%
•    Total recurring debt-to-income ratio not to exceed 43%
•    No income or credit score limits
•    30-year fixed-rate mortgages
•    Lower insurance mortgage premiums
•    FHA lenders can be more lenient during default and foreclosure
•    FHA loans can be assumed by a new borrower

When Should You Consider an FHA-Insured Loan:
•    If you’re a first-time home-buyer with steady income but without a lot of money to put down
•    If you’ve got less-than-perfect credit and bankruptcy or a foreclosure in your past
•    If you’re getting turned down by other lenders

When Not To Consider an FHA Loan:
•    If you have more than sufficient income (if your general loan, or monthly debt payments are less than 25% of your gross income)
•    If you have good credit and can afford over 20% down-payment
•    If you can comfortably pay the loan off quicker, thereby incurring lower interest rates and mortgage insurance