For years, an FHA loan was the choice of first-time home buyers with little cash for a down payment, a low credit score or too much debt.

Now it's also a great way for homeowners struggling to keep up with their payments to refinance into a more affordable mortgage.

Rules have been changed to make refinancing easier, and the amount of money you can borrow with an FHA loan has been significantly increased.

The new loan limits for single-family homes range as high as $729,750 in high-cost cities such as New York and San Francisco.

That's a big improvement over the old top limit of $362,790 -- a restriction that made FHA loans inadequate throughout most of California and the Northeast.

Here's where to find the new FHA loan limits in your area.

You can apply for an FHA-backed loan from most banks and mortgage companies. Here's where to find FHA-approved lenders in your area.

The Federal Housing Administration, a division of the Department of Housing and Urban Development, was created 74 years ago to help low- and moderate-income families obtain the financing they need.

The FHA guarantees repayment, so the lender knows it will not lose money on the deal. That allows the bank or mortgage company to offer competitive rates on a loan that's easier to qualify for than a conventional home loan.

Here are the ways you might benefit from an FHA-guaranteed loan:

Benefit 1. You don't need a big down payment, and your lender can help you get it.

An FHA mortgage requires a 3.5% down payment -- that's $35 for every $1,000 you borrow.

Don't have it? No problem. It can be a gift from a relative, friend or an organization that provides financial assistance.

The FHA works with state and local programs that extend help with down payments, closing costs and low-rate loans. Your lender will be glad to explain how these work.

Benefit 2. You need less equity to refinance with an FHA loan.

With the government standing behind you, you can borrow up to 95% of your home's value. If you refinance with a non-FHA loan, banks and mortgage companies will usually lend no more than 80% of its value.

If you already have an FHA loan, the housing administration's Streamline program allows you to quickly refinance into a less-costly, fixed-rate mortgage without an appraisal.

Benefit 3. Your credit doesn't have to be perfect.

The FHA doesn't use your credit score to decide whether you qualify for a loan or the interest rate you'll be charged.

Indeed, there are only two financial problems that will automatically disqualify you for an FHA loan. If you've:

• Declared bankruptcy, you must wait two years from the date of discharge and have re-established good credit before you can apply.
• Lost a home through foreclosure, you must wait three years and have a clean credit history during that time.

Beyond that, the government doesn't have a strict set of rules that determines who qualifies and who doesn't.

An underwriter at the bank who knows all the regulations governing FHA lending practices uses a computer program to analyze your finances and make the call.

There are two key elements that go a long way toward determining whether you get a loan: a two-year history of on-time bill payments and two years of steady employment, although exceptions are made.

The FHA will overlook minor lapses on your credit history if there's a reasonable excuse such as losing a job or serious illness. But your bill-paying prowess is a critical factor for every application.

Benefit 4. You can have more debt.

To qualify for an FHA loan, borrowers can spend up to 41% of their pretax income on other debts, such as student loans, credit card bills and auto loans. Some lenders will stretch that to 43% for borrowers with an excellent payment history.

That's considerably more than the 36% debt-to-income ratio limit imposed by most other types of mortgages.

Benefit 5. Rates are competitive.

The interest rate will depend on your credit history, with the best rates given to those with the best record of paying their bills and earning a steady income.

In general, you can expect an FHA loan will cost only about one-eighth of a percentage point more than any conventional loan for which you might qualify.

The big disadvantage to FHA loans is that all borrowers must buy mortgage insurance, no matter how much equity they have or the size of their down payment. That's the price borrowers pay for having the government stand behind their loan.

Every borrower is charged an up-front premium at closing of 1.75% of the amount borrowed.

While that can be added to your loan amount, it's still an extra charge.

If you don't have substantial equity in your home or a lot of money for a down payment, you'll also be charged monthly insurance premiums.

If your down payment is less than 5% on a 30-year, fixed-rate mortgage, those premiums will be 0.55% of the outstanding balance each year. A down payment of 5% or more will reduce your annual cost to 0.5%.

You won't be able to drop that insurance until you reach 22% paid equity and have made at least five years' worth of payments.

For loans of 15 years or less with a 10% down payment, the cost drops to 0.25%. Your insurance will be canceled when your paid equity reaches 22%, regardless of how long you've had the loan.

This annual charge is usually broken into 12 monthly payments that are added to your mortgage payment.

The monthly premiums are comparable to what you'd have to pay for private mortgage insurance if you have less than 20% equity in a home financed with a non-FHA loan. The big difference is that private mortgage insurance has no up-front premium.

Conventional loans also allow you to drop mortgage insurance as soon as you hold 20% of your home's equity -- the difference between what the home is worth and how much you owe on your mortgage. That can include any appreciation in your home's value, not just paying down the debt.

By Carolyn Siegel

Interest.com Associate Editor

Whether you're buying a home or refinancing an existing mortgage, we have a mortgage calculator that can help you make the right decisions.