• An FHA mortgage can help people buy a home with a minimal down payment.house image by kruszek from Fotolia.com
  
  The FHA, short for Federal Housing Administration, backs mortgages for people who cannot afford a large down payment. FHA mortgages usually require just a 3.5 percent down payment, significantly lower than the 10 to 20 percent typically required by conventional mortgages.
  
  

Borrower Requirements

• Borrowers must meet certain minimum qualifications in order to qualify for an FHA-backed mortgage. Borrowers must be old enough to sign for a mortgage in the state the mortgage is issued and have a Social Security number. The FHA does not have a minimum credit score requirement, but it does require that the borrower be able to show a satisfactory history of payments. If the borrower does not have a credit score, he cannot automatically be disqualified from consideration. Instead, the FHA requires lenders to look at the payment records of utilities, rent payments, car insurance and other bills regularly paid by the lender. In addition, borrowers must qualify for a mortgage from a lender, which may have stricter requirements than the FHA.
  
  

Income Requirements

• FHA loans look at two ratios that compare the monthly payment to the applicant's income. The front-end ratio, typically capped at 31 percent of the applicant's pretax income, compares the amount of the monthly mortgage expenses to the pretax income. For the purposes of the debt-to-income calculations, the monthly mortgage expenses include not only the mortgage payment but also real estate taxes, hazard insurance and mortgage insurance premiums. The back-end ratio, typically capped at 43 percent, compares all debt payments the applicant is liable for to the pretax income. When calculating these debt-to-income ratios, the FHA looks for income from work sources that can be documented and expected to continue.
  
  

Size of Mortgage

• The FHA requires that applicants pay at least 3.5 percent of the value of the property as a down payment. If the credit score of the applicant falls below 580, the down payment must equal 10 percent. The payment of closing costs does not count toward the down-payment requirement. For example, if an applicant wanted an FHA loan for a $100,000 property, she would only be able to borrow $96,500.
  
  FHA mortgage amounts are limited and vary across the country. These limits adjust annually for changes in housing markets. For 2010, the limits range from $729,750 in high-cost areas to $271,050 in low-cost areas.