If you have difficulties getting a home loan with conventional bad credit mortgage companies, you may just be able to satisfy the less stringent FHA loan requirements. The Federal Housing Administration (FHA) is a government initiative started by the Housing and Urban Development (HUD) to help many Americans secure affordable mortgage financing with bad credit. These people are unable to qualify for plans offered by private mortgage loan lenders.

FHA loans have allowed many American families with low income or with heavy debts to get the timely funds for purchasing their own houses. Contrary to common belief, FHA does not provide the actual loans and its main role lies in insuring the loans made by an approved FHA mortgage lender to borrowers with bad credit history. FHA loan requirements are well known to be lenient and can be easily gotten as long as you try. You can typically get the cheapest mortgage rates and FHA closing costs just as well.

There are only 6 main FHA mortgage requirements to be satisfied by applicants. Firstly, you should be able to provide proof of stable employment for the last three years to convince them of your ability to repay the home mortgage. You need to make a down payment of at least 3% on the value of your house and you must have a valid social security number to prove that you are legally an American resident (though there is no stipulation that you must be a citizen in order to apply).

If you have filed for bankruptcy previously, you need to have been discharged for more than 2 years and maintain a reasonable level of credit following the bankruptcy. If you have been in foreclosure previously, you need to wait for at least three years before submitting a new FHA loan application. Lastly, the house you intend to purchase must be intended for you and your family's personal use. You cannot apply for FHA loan to buy investment property or for collecting rentals.

A strange abnormality within the FHA loan guidelines is that there is an annual limit for the amount of loans for each county. If this limit has been reached, you will not be able to get a FHA mortgage loan with the cheapest mortgage rates. Note that all loans, regardless of the down payment or owned house equity, are subject to a FHA PMI (private mortgage insurance) that can raise the monthly expenses required to service the mortgage installments.

Although there are no specific minimum FHA loan requirements on the borrower's income, it is common sense that you should not be applying if you know that you cannot afford the mortgage installments. The FHA officers know this as well, which is why they are likely to reject your application for your own good. You can use many forms of stable income such as rentals, child support, freelance payments, pension payments, unemployment compensation, VA benefits, alimony, etc to count towards these FHA loan requirements.

Unlike conventional mortgage installments that are capped at a maximum of 28% of your monthly income toward housing and 36% towards all loans and debts repayments, FHA loans can be repaid at a higher 29% of your monthly income for housing and a total of 41% for all loans. This is because FHA is designed for people with bad credit, who usually have a load of other debts to be repaid. FHA loan requirements specify that you just need to come up with a down payment of at least 3% on the value of the house you wanted to buy, compared to the minimum of 5% required by conventional private lenders.

Aside from these FHA loan requirements, your FHA mortgage lender may have other additional guidelines to be complied with. Not every bank or mortgage lender is allowed to offer FHA loans, only those with a FHA connection are allowed to do so.

As a final note, even though the FHA loan requirements appear to be easily met by many people, not every one should apply for FHA loan plans because of suitability issues. Specifically, if you have very good credit or have sufficient spare cash to pay at least 20% down payment towards your new house, you need to consider the following FHA loans information and check whether conventional mortgage lenders may also be able to provide a cheap home loan for you.

More importantly, you can save a lot on the various mortgage insurance overheads that are mandatory when you apply for FHA loan packages. Firstly, there is the one time mortgage insurance premium (MIP) that is added to your house mortgage. This is required on all FHA loans and will add 1.5% to your loan sum. This is often seen as the fees charged by the FHA to underwrite your mortgage.

So if you are applying for a $200,000 dollar mortgage, the total amount owed will be $203,000. Furthermore, homeowners must also pay a monthly private mortgage insurance (FHA PMI) on the owed sum until the mortgage debt is completely cleared. With private mortgage loans, such types of mortgage insurance are unnecessary when you have good credit and have paid more than 20% on the loan to value (LTR) on your house mortgage.

The Housing and Economic Recovery Act of 2008 has been approved to empower the FHA to insure more loans for homeowners affected by the US sub prime housing crisis. For example, the HOPE for Homeowners Act of 2008 allows the FHA to insure up to $300 billion worth of 30 year fixed rate refinance at 90% of the house appraised value. This is expected to help around an estimated 400,000 homeowners. The FHA Modernization Act of 2008 increases the FHA loan limit from 95 percent to 110 percent of the area median home prices and up to 150 percent for GSE conforming loan limits at $625,000. The Housing Assistance Tax Act of 2008 provides first-time home buyers with refundable tax credit up to 10 percent of the house purchase price or $7,500. The various schemes above are available now to help even more borrowers by lowering the existing FHA loan requirements or loan amount limits.