NYC real estate – Pros and Cons of FHA Loans

What is FHA loan? The definition from Wikipedia is “A FHA insured loan is a Federal Housing Administration mortgage insurance backed mortgage loan which is provided by a FHA-approved lender. FHA insured loans are a type of federal assistance and have historically allowed lower income Americans to borrow money for the purchase of a home that they would not otherwise be able to afford. To obtain mortgage insurance from the Federal Housing Administration, a mortgage insurance premium (MIP) equal to a percentage of the loan amount at closing is required, and is normally financed by the lender and paid to FHA on the borrower’s behalf. Depending on the loan-to-value ratio, there may be a monthly premium as well. The program originated during the Great Depression of the 1930s, when the rates of foreclosures and defaults rose sharply, and the program was intended to provide lenders with sufficient insurance. Some FHA programs were subsidized by the government, but the goal was to make it self-supporting, based on insurance premiums paid by borrowers. Over time, private mortgage insurance (PMI) companies came into play, and now FHA primarily serves people who cannot afford a conventional down payment or otherwise do not qualify for PMI. The program has since this time been modified to accommodate the heightened recession”.

The disadvantage to use FHA loan is:  An FHA loan may not offer enough money if you need a large mortgage. In addition, the upfront mortgage insurance premium (and ongoing premiums) can cost more than private mortgage insurance. Especial in Manhattan most properties are apartments. Not all the buildings got approval for using FHA loan. Therefore use the local mortgage broker to get better loan for you.

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