How FHA Loans Are Different From Conventional Home Loans?

How FHA Loans Are Different From Conventional Home Loans

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Buying a home is one of the most responsible tasks that anyone encounters in their life that also consumes lot of effort and money as well. Finding the requisite funds for homes is no means an easy task. Though there are many types of home loans, choosing the best one needs thorough research. The Federal Housing Administration (FHA) loans have many benefits in comparison with ordinary home loans. These have lower down payments and flexible qualification guidelines.

Some of the advantages of FHS loans is the very low down payments, which will come around 3% as against a staggering 5-20% for conventional loans. The best part is that this down payment can also be a gift from a relative or a nonprofit organization, which is not always possible in the case of conventional loans.

General home loans carry Private Mortgage Insurance (PMI), a recurring monthly expense for those borrowers who have not provided 20% or more of the home's value in a down payment. FHA loans also require insurance, which is 1.5% of the loan amount at closing plus 0.5% annual renewal fee. While the private mortgage insurance can be canceled when the borrower has 20% equity, the FHA insurance is valid till the tenure of the loan.

The guidelines set for eligibility of FHA loans are far more simple that those of the typical loans and are not strict about past bankruptcies or foreclosures. Even those borrowers with higher debt to income ratio can avail these loans and a perfect credit score is not mandatory to be eligible for these loans.

Ordinary home loans are not transferable and should be paid off in full before selling off your home. However the FHA guaranteed home loans are normally transferable where the new home owner can take over the monthly payments.

FHA loans are well suited for a first time home buyer because of the flexible terms and eligibility criteria. However, it is important to understand that the FHA does not provide loans themselves but only provide the lenders with guarantee under their program.

The flexible eligibility norms and the lower down time payment make it a popular choice among home owners. However, FHA loans will have an insurance premium that run all through the life of the loan, which is the only drawback.

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