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What are the Benefits and Risks with an FHA Loan?

August 19th, 2011

FHA started insuring home loans in 1934.  This government finance agency has helped support millions of first time home buyers over the years. Many people think FHA is only for new home buyers, but FHA offers home refinancing, cash out loans and much more.

The main benefits of FHA mortgages

1) FHA encourages home financing with low down-payments starting at 3.5% of the home sales price.

2) The credit requirements with FHA home loans are more flexible than conventional and private money lenders.

3) FHA refinancing is easy and cost effective if the FHA interest rates should fall at a later date.

FHA also offers a home improvement loans called the FHA 203K. Borrowers can purchase a “fixer-upper” and finance the house rehabilitation.  Since construction loans have disappeared the 203K loan is the only home loan that enables the repairs and renovations to be rolled into the mortgage.

The downside of FHA financing

1) FHA loans usually have more expenses than other conventional home loans because there is mortgage insurance required to be paid upfront prior to closing.

2) Monthly housing expenses are higher than traditional loans because FHA requires a monthly mortgage insurance payment that is due with each loan payment.

3) Each year HUD announces the FHA loan limits. This means that there is maximum amount that can be borrowed and the amounts vary by region.

Read more of Nasdaq’s article online about the basics of FHA loans

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