Have you been putting off buying a house because you can’t quite scrape together a full 20 percent down payment? Fortunately, the lack of a large down payment doesn’t have to be the thing standing between you and home ownership. With an FHA mortgage loan, you can get approved for financing with as little as a 3.5 percent down payment. FHA mortgage loans are backed by the government as part of a program through the Federal Housing Administration (FHA). The goal of this particular type of mortgage is to allow potential buyers with less-than-perfect circumstances to get approved for financing and buy a home.

FHA mortgage loans are particularly beneficial for first-time homebuyers because of the more relaxed standards for approval. Not only do FHA mortgage loans offer financing opportunities for those with smaller down payments, they also offer loans for those with lower credit scores. Most can qualify with a credit score as low as 580. And, an aspect that is commonly useful for first-time buyers is that FHA mortgage loans allow for monetary gifts to be used for down payments.

The question of gifted funds is a particularly important aspect because most loan applications will take a thorough look at your finances as part of the underwriting process, and they will pay particular attention to any funds that were received as gifts. Often, you will need to provide a gift letter to explain the details of any gifted funds that you’ll be using as part of your down payment. When gifted finances make up a sizeable portion of your down payment, it will be factored into considering how likely you are to repay your loan. FHA mortgage loans tend to be more lenient about gifted finances as long as you have a steady employment history and are otherwise a good candidate.

However, since FHA mortgage loans are geared toward those with a lower income and/or smaller down payments, there are some restrictions to this type of loan. For example, the combined cost of mortgage payment, HOA fees, property taxes, and insurance (a combination called the front-end ratio) is generally restricted to less than 31 percent of your gross income. There are some other situation-specific requirements, so the best way to see if you qualify for an FHA mortgage loan is to discuss with a mortgage lender. Contact Patriot Home Mortgage to see if the FHA is the right mortgage option for you.