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FHA Loans

FHA Loans are mortgage loans obtained with the help of the Federal Housing Administration. The FHA helps borrowers to purchase a home with a small down payment and offer several additional benefits.

FHA loans are insured against default by the FHA, which means that a lender won’t have to write off a loan if the borrower defaults – the FHA will pay. Because of this, lenders are willing to give loans more easily.

FHA loans are available to almost everybody – there are no income limits, but there are limits on how much can be borrowed. Usually, FHA loans are small mortgage loans. Also, the borrower must have a decent credit history.

Some of the benefits offered by the FHA loans are:

  • Down payments as low as 3.5%
  • No prepayment penalty
  • Funding for home improvement
  • FHA loans are assumable

Apart from having to fulfill certain criteria (decent credit), the FHA also charges borrowers a fee, a mortgage insurance premium (MIP) of 1%. There are also modest ongoing fees with each monthly payment.

In general, FHA loans might not be the best choice if the borrower needs a large loan. Also the MIP of 1% might be larger than some private mortgage insurance offers.