FHA loans exist as part of an initiative of the Federal Housing Administration (a part of HUD) to increase homeownership and affordable housing.  These loans are originated by banks but insured by the FHA.  This means you’ll pay an additional fee with your mortgage payments known as MIP or mortgage insurance premium.  However, FHA loans offer low down payments, low closing costs, and easy credit qualifying.

The limits for these loans are currently raised to $271,050 for most areas up to $729,750 for higher cost areas.  The limits will be at these levels through the end of 2010 as part of the American Recovery and Reinvestment Act.

HUD offers a great “homebuyer’s kit” on their site to help understand the process of buying a home.

Be sure to discuss all mortgage options with your lender and/or financial advisor.