If you are a first-time buyer and you don’t have a large down payment, you might want to consider FHA home loan.  It’s really a popular financing option for many borrowers.

Most people assume that an FHA loan is issued directly from the Federal Housing Administration (FHA), but actually FHA simply insures the loan.  Lenders are made more comfortable with the loan process through this kind of insurance that assists buyers.  You are more likely to be approved for a home loan because in case you default, the mortgage lender who works with the FHA knows that FHA will cover the loss.  There is a lower risk factor for the lender if the borrower has no credit, less than perfect credit, or a small down payment.

The requirements for FHA mortgages are not as strict as those for conventional mortgages.  You are still getting approved for a loan with fair interest rates even if you are a first time home buyer and you have a questionable credit.  You can still qualify even if you have as little as 3 percent down.

Check with your lender about FHA home loan requirements since they change from time to time.  Some of these requirements state that borrowers must:

* Show a mostly positive two-year credit history.

* Earn consistent income.

* Be bankruptcy-free for at least two years.

* Have a steady employment record.

It is also required that the monthly home loan payment falls below 30 percent of their gross monthly income.

There are different types of FHA Loans that allow borrowers to pick a mortgage loan that is suited to their individual financial needs. The most common FHA loans are:

* Adjustable Rate Loans – These loans are a type of HUD mortgage specifically designed for borrowers that would benefit from initially low monthly payments.

* Fixed Rate Mortgages – These loans are great for those who want to have a predictable monthly payment but don’t have the down payment needed to qualify for a conventional loan.

* Graduated Payment Mortgages and Growing Equity Mortgages –  These FHA loans are best suited for borrowers who currently have a low to moderate income, but expect to make more money in the near future.

* Energy Efficient Mortgages (EEMs) – This mortgage program was created to help potential, and even current, homeowners incorporate the costs of energy efficient home improvements into an FHA loan.

Aside from bad credit and lack of down payment, another common deterrent to becoming a homeowner is closing costs.  There are special programs that can help you finance such costs if you do not have the money to close on your loan.