 TITLE: Is an FHA Loan Right for You? CONTENT: What Are the Downsides of an FHA Loan?\n--------------------------------------\nWhile an FHA loan can be a lifesaver if you want to buy a home and have limited cash on hand or a not-so-great credit score, these loans do have some drawbacks you should be aware of before you apply.\n*   **Very strict appraisal standards.** The U.S. Department of Housing and Urban Development (HUD) has stringent property appraisal standards that exclude many properties from FHA loan eligibility. The home also has to be your primary or principal residence, so you can't use it as an investment property (though FHA loans can be used for some multi-unit properties up to four units). Mobile homes and other prefabricated dwellings can qualify, but many condominiums cannot.\n*   **Mandatory mortgage insurance.** Borrowers with lower credit scores are statistically more likely to miss payments or default on their loans than people with higher credit scores, so lenders require FHA borrowers to pay mortgage insurance to mitigate the risk. Per FHA guidelines, the cost of this insurance is spread across two payment types:\n    *   A single bulk payment of 1.75% of the loan amount is due at closing. Like other closing costs, this can be included in the loan financing.\n    *   An additional annual premium of 0.45% to 1%, depending on the loan's term, down payment and amount, is added to your monthly payments.\nWhile it's convenient to be able to roll the bulk mortgage insurance payment and other closing costs into your FHA loan, it raises your monthly payment, and you could be adding tens of thousands of dollars to the amount you'll pay over the life of the loan. It may be worth it for the opportunity to buy a home of your own, but it's important to be aware of the potential cost. END