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FHA Mortgages

FHA mortgage loans are fixed-rate mortgages back by the government agency Federal Housing Administration (FHA).  This guarantees that lenders will not have to write off the loan if the borrower defaults because the government will pay for the loss.

FHA loans maybe a good option for some first-time buyers because there are not income limits.  There is a limit to how much you can borrow and you are limited to smaller mortgage loans relative to home prices in your area.  You can find the limits in your area by visiting HUD.gov.

How do I qualify?

To qualify for a FHA loan, you need to have decent credit and a reasonable debt to income ratio which will allow lenders to determine how much you can borrow.


What are the advantages with a FHA Loan?

The main advantage with FHA loans is that it allows lenders to offer lower down payment options as low as 3.5. FHA loan makes it easier for gifts to be used as down payment and closing cost.  There are no prepayment penalty (an advantage for subprime borrower).  FHA loans may be assumable; meaning someone else can take over your loan instead of having to refinance the home.  FHA loans may offer some leniency during financial hard times.  Finally, with FHA loans you use it for home improvements via FHA 203k programs.

What are the disadvantages with a FHA Loan?

Since FHA loans are backed by the government if you default, there is an upfront mortgage insurance premium (MIP) of 1% which cost more than a private mortgage insurance. With MIP you will also have to pay a modest ongoing fee with each monthly payment.  Finally, if you need a large mortgage, then a FHA loan isn’t for you.  

Keep in mind that if you have good credit, you maybe able to find competitive rates that beat FHA loans.

 

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