FHA Loans Explained

FHA : A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.

FHA loans allow consumers to buy a house with as little as 0-3% down, instead of the higher percentages required to secure many conventional loans. This is a great way for first time buyers, or anyone with a shortage of down payment funds, to buy a home.

The FHA does not make home loans--it insures them. If a borrower defaults, the lender is paid from the insurance fund. To get an FHA home loan, you'll need to good credit, and sufficient income to qualify for the loan.

How Much FHA Loan Can You Afford?

For FHA loans, your monthly housing costs should not exceed 29% of your gross monthly income. Total housing costs include mortgage principal and interest, property taxes, and insurance. Those four terms grouped together, and referred to as PITI.

Your total monthly costs, adding PITI and long term debt, should be no more than 41% of your gross monthly income. Long term debt includes such things as car loans and credit card balances.

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