If you would like to buy a home, but you have past credit problems, recent FHA loan program changes may give you an answer to your problems. FHA has been backing mortgages for a long time, but guidelines have been revised substantially over the last few years. Changed so much that the real estate broker or home owner you are trying to negotiate with probably will not know the requirements of the program.

The initials ''FHA'' stand for Federal Housing Administration. The FHA is a part of the Department of Housing and Urban Development (HUD). When you see HUD homes for sale, they are foreclosed homes that were financed with mortgages guaranteed by FHA.

The FHA program was started in 1934 under the National Housing Act with the stated purpose of opening up credit and home ownership opportunities for potential home owner's who may have had credit problems, have a limited credit history, or lower income than allowed on conventional mortgages

FHA achieves this goal by issuing an insurance policy that guarantees payoff of the loan if the borrower defaults. This guarantee allows the lender to assume more risk and therefore approve loans for borrowers who would not be approved under conventional mortgage programs.

FHA insured mortgage guidelines were designed to accommodate the situations faced by first time home buyers, but any borrower without an outstanding FHA loan guarantee is eligible to use FHA to purchase or refinance. The standard FHA program is not for purchasing non-owner occupied investment property.

Many experienced real estate brokers and home sellers have heard horror stories about FHA's excessive red tape and are therefore reluctant to recommend that buyers use an FHA loan. At one time, FHA regulations were much restrictive and resulted in higher fees for home sellers. Processing times on FHA loans often delayed the sale of the property while fighting with underwriters over silly bureaucratic issues. However, today these issues are almost completely resolved.

If you have an agent or seller who is reluctant to accept an offer involving FHA financing, here are some of the benefits you can give them:

1. Low down payment requirements. The required down payment is typically 3% or less of the sales price. This down payment can come entirely from gift funds from a family member or a non-profit foundation.

2. The seller can pay up to 6% of the total sales price for closing costs and prepaid expenses. This allows a buyer to negotiate an agreement which results in having to bring absolutely no cash to the closing!

3. FHA requires no financial reserves at the time of loan approval. A borrower with no savings, and no money in checking will still meet the requirements.

4. Recent FHA appraisal reform eliminated the need for minor cosmetic repairs to the property before closing. The program now allows ''as is'' appraisals and no longer requires automatic inspections for termite, well or septic. These conditions were part of the red tape that aggravated sellers and agents so much in the past.

5. There is no official minimum credit score. HUD provides an automated underwriting system named FHA Total Scorecard. Borrowers approved by this system are not required to write credit explanations, pay off old collections, or remain below an arbitrary debt to income ratio.

6. If the automated underwriting system does not approve your loan, the underwriter is given discretion to use common sense in the decision to approve the loan manually. The underwriter often is not given such discretion on conventional loans.

8. Never any prepayment penalties. Many loans borrowers with credit problems have been getting including significant penalties if the loan is paid off within the first 3-5 years. Such prepayment penalties inhibit refinancing for a lower rate or to lower debt payments. FHA loans have no such prepayment penalties. FHA loans even allow for "streamlined refinancing" As long as a borrower has made mortgage payments on time, there is no requirement to produce all of the qualifying documentation again in order to refinance.

FHA loans provide extensive benefits for both buyers and home sellers. There would be many fewer potential buyers in the market without the program. FHA allows borrowers with past credit difficulties to get the same mortgage rates as perfect credit borrowers with no money out of pocket to buy the home.