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Making your home purchase a reality without a 20% down payment

While the credit crunch has made it much harder for people to get loans it isn't impossible to qualify for a low down payment loan.

The FHA can help!

The FHA (Federal Housing Administration) offers 3.5% - 10% down mortgages to qualified buyers.

How do I know if I qualify?

The first step is to get in touch with an FHA-approved lender. You can search for an FHA-approved lender here: http://www.hud.gov/ll/code/llslcrit.cfm, the website of the U.S. Department of Housing and Urban Development.

Unlike traditional mortgage lenders who offer an interest rate based on credit score, FHA lenders offer interest rates based on income; the agency's guidelines state that buyers can spend no more than 31% of their gross income on mortgage payments.

The FHA does charge insurance premiums, which pay to cover any defaults. FHA borrowers will pay an initial fee of 1.5% - 2.5% of their loan amount, as well as an on-going annual fee of 0.5% (which is then included in the borrower's monthly mortgage payment).

While a low credit score won't disqualify you, borrowers with credit scores of 500 or less have to provide a larger down payment, up to the 10% maximum.

There are also limits on how much can be borrowed, depending on where you live. In most parts of the country FHA borrowers can finance up to $271,050, depending on their income. In the highest-cost areas, qualified borrwoers can finance up to $729,500.

An FHA lender in your area can provide you with specific details based on your income and the home you are interested in purchasing. You can also visit the FHA's website at https://entp.hud.gov/idapp/html/hicostlook.cfm to look up the FHA mortgage limits by state, county, or MSA.