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The TSP Loan Guide, Part 2: Pros and Cons of TSP Loans – TSP Allocation Guide #auto #title #loan


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The TSP Loan Guide, Part 2: Pros and Cons of TSP Loans

What are the advantages of Thrift Savings Plan loans?

(1) The interest rate is very low and you are paying it to yourself instead of to a bank. So the loan is essentially free to you, other than a small administrative charge.

(2) You avoid the 10 percent penalty on early withdrawals from retirement accounts. If you aren’t old enough, or are old enough but haven’t separated from federal service, you would have to pay this penalty if you withdrew the money outright.

(3) The fee charged for TSP loans is a very low, flat fee of $50.

(4) The TSP loan application is quick, easy and straightforward. No one is turned down for a loan assuming sufficient employee contributions and earnings. No credit check is required. Other types of loans require a more complex application process, a credit check and more fees.

(5) There is no negative impact on your credit score. A TSP loan does not appear on your credit report, because it is not really a loan (you are using your own savings). If a TSP loan borrower loses his or her job, retires or leaves federal service and is unable to pay off the loan balance, the unpaid balance will be classified as a distribution for which income taxes must be paid, but it will not show up on your credit report as a default.

What are the disadvantages of TSP loans?

(1) The most significant disadvantage is missed opportunity. The most powerful feature of a retirement plan like the TSP is the tax-deferred growth and compounding of earning. Removing funds from your TSP account can significantly affect its growth. The inevitable result will be a smaller TSP balance at retirement, which will impact the way that you live out your golden years.

For example, lets say you took out a $50,000 residential property TSP home loan at the current interest rate of 2.125% and paid it off over 15 years. At the end of those 15 years you would have paid back $58,500 (and earned an additional $950 in interest on the principal after you paid it back). Your nest egg would have grown by only about $9500 in 15 years, and nearly all of that money came out of your pocket. Compare that to $50,000 compounding at 10.6% (the stock market s average rate of return over the past 25 years). At the end of 15 years you would have $243,481.

(2) Potential tax penalty. If you fail to pay off a TSP loan, income taxes on the distribution will be due. An additional IRS early withdrawal penalty of 10 percent will be applied if the account owner is younger than age 59.5 at the time of the loan default.

(3) A TSP loan of either type is not a mortgage. Therefore, the TSP loan interest payments are not tax deductible, as they might be for a mortgage or home equity loan.

(4) If you leave Federal service, you must pay off the loan within 90 days of the date when your agency reports your separation to the TSP. Any unpaid balance will be reported as a taxable distribution

The Double Tax Myth of TSP Loans

In the Disadvantages section of most websites which address TSP loans, the authors usually blindly copy some original source which incorrectly stated that taking a TSP loan results in paying taxes twice because the TSP account holder is moving tax-deferred assets into the taxable realm and after-tax income must be used to repay the loan. Suze Orman popularized the notion while discussing 401K accounts (which have the same tax treatment as the TSP) and this myth is widely spread across the internet.

Let’s say you want to borrow $10,000 from your Thrift Savings Plan account for a year. The TSP G Fund interest rate at that time is 5%, which you must pay back to yourself. That $10,000 was a pre-tax contribution, so you never paid income taxes on it. You take it all out, leaving yourself with $10,000 in cash. You haven’t paid any taxes on that $10,000. You leave it under your mattress, and a year later pay back the same $10,000 plus $500 in interest. You still haven’t paid taxes on the $10,000. When you eventually withdraw the money, then you finally must pay taxes. So what was the only thing taxed twice? The part attributable to the $500. Not the $10,000.

Now, does it matter if during the year your brother took the original 10,000 and then later replaced it under your mattress with a different $10,000? The answer is no. As long as you pay back the $10,000, that is all that matters.

The only part that is taxed twice is the interest. And since you are paying yourself the interest, this small double-tax is really the only cost of doing this loan. Using the example above and assuming a 25% marginal tax bracket, that means you only got taxed an extra $125 on that $10,000 loan. This is the same as getting a regular loan with a 1.25% interest rate.


Pros and Cons of Refinancing a Car Loan #payday #loan #no #credit #check


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Pros and Cons of Refinancing a Car Loan

By Emily Delbridge. Car Insurance and Loans Expert

Emily Sue Delbridge has a strong family history in the insurance industry. She has been in the insurance business since 2005 with her primary focus on personal lines insurance. Read more

Refinancing a car loan can seem appealing at times. It is important to take a close look to make sure you will benefit from refinancing. Refinancing has both pros and cons depending on your situation. Making educated decisions about your finances will keep you on the right track to financial well being.

Pros of Refinancing a Car Loan

  • Get more money out: If you currently owe less than what your vehicle is worth, you may be able to access more money by refinancing. For instance, you have owned your vehicle for three years. Your vehicle is currently worth $8000 and you owe $5000. You need money for a small home improvement. One option would be to refinance your vehicle for $6500. You will still owe less than what the vehicle is worth and have $1500 after the new loan pays off your previous $5000 balance. The $1500 can now be used for your home improvement.
  • Lower your payments by extending the loan: Sometimes a life changing event such as a baby or medical expenses put you in a situation where you absolutely have to reduce your monthly expenses. Refinancing can allow you to extend your loan. For instance, if you owe two more years on your current loan, it may be possible to refinance for four years. Adding two years onto your loan should substantially lower you monthly payments depending on the interest rate you get. You will be paying for two years more, but you will free up some cash on a monthly basis helping you get through a rough patch.

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  • Change Lenders: Changing lender can be a pro or a con depending on the relationship you have with your lender. If your lender is tough to contact or is not getting you your payment information, changing lenders could be a pro. If you like your lender, you can try to refinance with them however you may need to look elsewhere to get the best rate.

Cons of Refinancing a Car Loan


Student Loan Consolidation: Pros and Cons – The Simple Dollar #simple #loan #calculator


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Student Loan Consolidation: Pros and Cons

Combining all of your student loans into one may not taste as good as one-pot chili, but it could make your monthly payment easier to swallow. Photo: Jo

Graduating from college comes with the acknowledgement of great achievement and, if you re like 70% of graduates, a burden on your back in the form of student loan debt.

The average college grad leaves school with $40,000 worth of debt. But if you switched majors, transferred colleges, or went on to graduate school, you may be among the 19% that owe $50,000 and above, or the 5.6% who owe more than $100,000.

Chances are if you re dealing with student loan debt. you re not just dealing with one loan. Each semester, you may have taken out a new loan. And if you couldn t cover the costs with federal loans, you very well may have turned to a private lender, such as a bank or other lending institution (e.g. Sallie Mae) to fund the rest of your expenses.

One option you have when you begin tackling your student loan debt is to explore loan consolidation. But before you head down that road, here s what you should know.

What is Student Loan Consolidation?

If, like many college graduates, you have multiple student loans, you ve probably heard the term student loan consolidation thrown around more than once when talking about repayment options. Simply put, this is the process of combining your multiple student loans into a single, bigger loan, possibly with a new lender. 

You’ll no longer owe the original loans, and since this consolidated loan is new, it will come with a new interest rate, a new payment policy, and new terms and conditions.

There are both benefits and drawbacks to consolidating your loans, which we ll discuss in this article. Choosing to consolidate your loans is an individual choice and the right decision will depend on the specifics of your loans the types of loans, interest rates, balances, borrower benefits, and more as well as your current financial situation.

Pros and Cons of Loan Consolidation

It s important to remember that there are different types of loans most significantly, there s a big difference between federal loans (those issued by the U.S. government) and private loans (those issued by a bank, credit union, or other lending institution).

Each has its own pros and cons, which we ll get into in a little bit. But in general, here are some of the benefits and potential drawbacks when considering student loan consolidation.

Pros of Student Loan Consolidation

  • Simplicity. Consolidating your student loans can make dealing with them a little less unwieldy, with just one or two monthly payments and one or two accounts to keep track of. (Many sources advise against consolidating private loans with federal loans instead, they recommend that you consolidate your federal loans into one loan and private loans into another.) If you re forgetting to make payments and have difficulty keeping track of all of your different loans, this can keep you organized and help you to avoid missing payments which can result in late fees or damage your credit.
  • Potentially lower payments: Consolidation can potentially lower your total monthly student loan payment with either a lower interest rate or longer repayment period, but this depends on the interest rates and terms of your current loans. This is especially beneficial if you ve been struggling to make payments and can t qualify for a deferment or income based repayment plan.
  • Better credit, better rates:  If you ve graduated and gotten a (hopefully) great job, and have been making responsible financial choices such as keeping your credit card balances low and making payments on time, your credit score may have gone up. If your credit score has improved since you initially took out your loans, you may be eligible for a lower interest rate  on a new consolidation loan since lenders will consider you less of a risk than you previously were. This will obviously depend on your credit history, the rates on your existing loans, and the interest rates your new lender can offer you.
  • Dodge default: One in 10 borrowers has defaulted on federal loans, according to the Department of Education. If you re in default, loan consolidation can offer a solution, since it can possibly lower your monthly payment, depending on your loans. You may be required to get your loans into good standing before being able to consolidate them, though.

Cons of Student Loan Consolidation

  • Loss of benefits: Depending on your loans, you may lose certain borrower benefits if you combine your loans. Examples include loan forgiveness where all or a portion of your loan debt can be cleared if you meet certain conditions flexible or income-based payment options, or deferments.
  • Potentially higher rates: Depending on your current interest rates and loan amounts, you can actually end up paying higher interest rates and increasing the overall amount you owe. You may end up paying more on your loans than you would have if you did not consolidate them.
  • Longer repayment period. While it can lower your initial payment, a consolidation loan can lengthen the duration of your debt, and you may end up actually paying more over time.
  • Beware of variable rates: When consolidating your private loans with a private lender, you may be offered a low but variable interest rate (as opposed to a fixed rate). That means the rate can increase over time sometimes dramatically so and therefore so can your payments.

Consolidating Federal Loans

Hopefully, you tried to take advantage of financial aid in college   specifically, federal student loans   before turning to private loans, which often carry a higher interest rate and come with fewer borrower benefits.

If you did, you may want to learn how to specifically consolidate these federal loans. The Direct Consolidation Loan allows you to consolidate multiple federal student loans into one.


The pros and cons of using a cloud backup provider #pros #and #cons #of #cloud #storage


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The pros and cons of using a cloud backup provider

Using a cloud backup provider for data protection has a number of key advantages, such as scalability; freedom from day-to-day management; and potential cost savings on bandwidth, compared with writing data between multiple sites. But using a cloud backup provider also comes with drawbacks. such as possible latency issues and questions related to handing data over to a third party for safekeeping .

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IT Project: Migration to Cloud

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In this interview, SearchStorage.co.UK Bureau Chief Antony Adshead speaks with Chris Evans, an independent consultant with Langton Blue. about the pros and cons of using a cloud backup provider and how best to incorporate cloud backup into your data protection regime .

Read the transcript or listen to the podcast on the pros and cons of using a cloud backup service provider .

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SearchStorage.co.UK: What are the benefits and drawbacks of using a cloud backup provider ?

Evans: To set the scene here, we’re talking about backing up into a cloud storage service provided by a [cloud backup provider ], and there are a lot of those on the market today.

The sort of benefits you’d expect to get from a cloud backup provider are those you’d expect to get out of cloud [generally]. First of all, it’s massively scalable; you should be able to write as much data as you like into that cloud environment. For backup environments. that’s quite good because a lot of people don’t plan or capacity plan their backup infrastructure when they add new storage into the primary environment, so there tends to be a lag, and issues can come from that. So, not having to worry about the scalability of your backup service is a real positive benefit.

Because you’re backing up into the cloud. clearly that also means you’re not managing that infrastructure that you would if this was your own backup environment. Another benefit from that is the fact that you are connecting to a cloud service over the Internet, and if you’ve got lots of sites, you only need to have connectivity from your site to the Internet, so potentially bandwidth costs are cheaper as you’re not writing data between multiple sites.

Talking of cost, clearly costs are different for this model as you pay a fixed price for these sorts of services so it’s a lot easier to work out what your costs will be to deliver backup.

Finally, if you’re backing up to a cloud service, you’ll find you get vendor-provided additional features. So, that vendor might be doing replication between sites to make sure that the data isn’t lost, and maybe keeping multiple copies. Also you may can access the same backup from different locations so if you’ve backed up from one site you may be able restore to another.

Clearly, we have to look at disadvantages too, and there are some. The first one is latency. There’s an issue with latency into the cloud. This is less of an issue with backup data compared to, say, primary data because you’re not doing a lot of individual I/Os. You may be streaming data into the cloud, so latency could be an issue but not as much as if it was primary data.

Another disadvantage is that you’re passing responsibility for this data to a third party. Whereas you may maintain those backups yourself and have encrypted them and done work to make sure your backups are secure, you’re now passing that responsibility on to someone else, and you want to be sure they’re operating to a similar set of standards around security and availability. You could choose to encrypt your backups before you write them, and that will give you some more security.

The final disadvantage is [that] you’re dependent on that one cloud backup provider, so what happens if that provider goes out of business; how do you get your data back? The provider may have the data in a proprietary format so it may not be easy to extract yourself from that provider, and that’s a real issue if you want to move your backups elsewhere. You could be tied in to that backup provider for, say, seven years if that is what the retention time for backups is, so you need to be aware of that; you have a dependency on that [provider].

SearchStorage.co.UK: How can I incorporate cloud as a backup target into my data protection regime?

Evans: Let’s talk about backup products in general. Typically, a lot of organisations will use some of the standard products that are out there: products like NetBackup from Symantec or products from CA and so on. You will find a lot of those products now will integrate directly with a cloud provider, so you can add the cloud environment as a target from within that backup infrastructure and direct some of your backups into that cloud architecture.

Another possibility is to look at the APIs provided by the cloud vendors and write your own solution. That, to me, sounds like an expensive route, but it is a possibility if you’ve got very specific backup requirements in place.

A third option is to look at the providers who use things like iSCSI targets. That allows you to present storage into your environment as if it were a LUN. and you can use whatever backup methodology you’re using internally to back up to that LUN, and of course then you’re securing that data off-site.

I think the issue with all these methods is that you really need to think through exactly how you’ll use these backups going forward and how you’ll be able to track what’s going on and how you’ll be writing it out and how you’ll maintain some sort of independence from that provider. I think you need to look at it in detail and say, “If I back up to one provider, how can I move that to another?” Those are probably the more interesting and sensible questions to be thinking of as you try and add this to your existing backup regime.

This was last published in January 2012

mcorum – 12 Jun 2015 10:11 AM

Latency is always going to be an issue, but there have been some good advances made to help address those issues. One option to help with the latency of a local restore is a hybrid cloud DR service where an on-site appliance gathers backups from the client machines and handles the transfer of that data to the cloud. IT also stores a local copy, allowing for a restore to be performed locally much faster than a purely cloud DR service. I suspect that these solutions will become more available, making it a viable option for more businesses.

Senditgl – 26 Jul 2017 4:19 PM

Agreed, cloud storage services are great for back-up. There are many options on the market, and not at high costs, so it’s suitable even for small businesses. If you’re concerned about privacy ask each provider about their policy. If your business is dependant on collaboration and home office, then you should get something which includes online collaboration features. Sendit.gl is especially designed for heavy file storage and includes the option of receiving feedback from people you’ve shared files with.


The TSP Loan Guide, Part 2: Pros and Cons of TSP Loans – TSP Allocation Guide #best #rate #loans


#tsp loan
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The TSP Loan Guide, Part 2: Pros and Cons of TSP Loans

What are the advantages of Thrift Savings Plan loans?

(1) The interest rate is very low and you are paying it to yourself instead of to a bank. So the loan is essentially free to you, other than a small administrative charge.

(2) You avoid the 10 percent penalty on early withdrawals from retirement accounts. If you aren’t old enough, or are old enough but haven’t separated from federal service, you would have to pay this penalty if you withdrew the money outright.

(3) The fee charged for TSP loans is a very low, flat fee of $50.

(4) The TSP loan application is quick, easy and straightforward. No one is turned down for a loan assuming sufficient employee contributions and earnings. No credit check is required. Other types of loans require a more complex application process, a credit check and more fees.

(5) There is no negative impact on your credit score. A TSP loan does not appear on your credit report, because it is not really a loan (you are using your own savings). If a TSP loan borrower loses his or her job, retires or leaves federal service and is unable to pay off the loan balance, the unpaid balance will be classified as a distribution for which income taxes must be paid, but it will not show up on your credit report as a default.

What are the disadvantages of TSP loans?

(1) The most significant disadvantage is missed opportunity. The most powerful feature of a retirement plan like the TSP is the tax-deferred growth and compounding of earning. Removing funds from your TSP account can significantly affect its growth. The inevitable result will be a smaller TSP balance at retirement, which will impact the way that you live out your golden years.

For example, lets say you took out a $50,000 residential property TSP home loan at the current interest rate of 2.125% and paid it off over 15 years. At the end of those 15 years you would have paid back $58,500 (and earned an additional $950 in interest on the principal after you paid it back). Your nest egg would have grown by only about $9500 in 15 years, and nearly all of that money came out of your pocket. Compare that to $50,000 compounding at 10.6% (the stock market s average rate of return over the past 25 years). At the end of 15 years you would have $243,481.

(2) Potential tax penalty. If you fail to pay off a TSP loan, income taxes on the distribution will be due. An additional IRS early withdrawal penalty of 10 percent will be applied if the account owner is younger than age 59.5 at the time of the loan default.

(3) A TSP loan of either type is not a mortgage. Therefore, the TSP loan interest payments are not tax deductible, as they might be for a mortgage or home equity loan.

(4) If you leave Federal service, you must pay off the loan within 90 days of the date when your agency reports your separation to the TSP. Any unpaid balance will be reported as a taxable distribution

The Double Tax Myth of TSP Loans

In the Disadvantages section of most websites which address TSP loans, the authors usually blindly copy some original source which incorrectly stated that taking a TSP loan results in paying taxes twice because the TSP account holder is moving tax-deferred assets into the taxable realm and after-tax income must be used to repay the loan. Suze Orman popularized the notion while discussing 401K accounts (which have the same tax treatment as the TSP) and this myth is widely spread across the internet.

Let’s say you want to borrow $10,000 from your Thrift Savings Plan account for a year. The TSP G Fund interest rate at that time is 5%, which you must pay back to yourself. That $10,000 was a pre-tax contribution, so you never paid income taxes on it. You take it all out, leaving yourself with $10,000 in cash. You haven’t paid any taxes on that $10,000. You leave it under your mattress, and a year later pay back the same $10,000 plus $500 in interest. You still haven’t paid taxes on the $10,000. When you eventually withdraw the money, then you finally must pay taxes. So what was the only thing taxed twice? The part attributable to the $500. Not the $10,000.

Now, does it matter if during the year your brother took the original 10,000 and then later replaced it under your mattress with a different $10,000? The answer is no. As long as you pay back the $10,000, that is all that matters.

The only part that is taxed twice is the interest. And since you are paying yourself the interest, this small double-tax is really the only cost of doing this loan. Using the example above and assuming a 25% marginal tax bracket, that means you only got taxed an extra $125 on that $10,000 loan. This is the same as getting a regular loan with a 1.25% interest rate.


Personal Loan Pros #citiassist #student #loan


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Quick Easy Personal Loans for All Types of Credit

We understand that people from all walks of life, at one point or another, face financial hardships. During these financial hardships are when people need the most help in finding a solution to their problem. That s where we come in. We help consumers find unsecured personal loans even if they have bad credit or been declined by the big banks. There are several types of personal loans, but the type of loan you qualify for depends on your situation, such as residence, income, credit and how quickly you need the money.

Loan Types Available:

Each type of loan has its pros and cons. Please read the description for each loan type below and see which one makes sense for you.

Payday loans  are one of the most expensive ways to borrow money. These loans are intended for short-term emergency cash. Qualifying for a payday loan is easy, and it s one of the reasons why so many people use them. There are no credit checks and the application process is fast. An online application can take less than 5 minutes to fill out, while a trip to the local payday loan store may take 30 minutes to an hour, depending on how far you are from the store and how long the lines are. You can get your money the same day in-store, or overnight if you apply online. We recommend applying online for several reasons .

Installment loans carry lower interest rates, higher loan amounts ($2,000-35,000) and longer repayment terms. However, qualifying for an installment loan may be slightly more difficult than qualifying for a payday loan. For example, an installment loan may require better credit and a higher income compared to a payday loan. The funding speed for installment loans vary from lender to lender, but typically you can get your loan deposited to your bank account in a couple of business days.

Peer-to-peer loans have been around for quite some time, but many people still have not heard of it. Peer-to-peer loans are provided through a handful of peer-to-peer lending platforms. These lending platforms allow you to borrow considerable amounts of money from a group of investors at interest rates that are significantly lower than a payday or installment loan. In order to qualify for a peer-to-peer loan, you will need fair credit or better. Funding for peer-to-peer loans may take a few days to a week, so if you re looking for an overnight loan, this isn t it.

Military loans are personal loans that conform to the lending laws set forth by the Military Lending Act of 2006. This law makes it illegal for payday lenders to offer loans to members of the military, as well as providing certain protections and benefits. If you are an active member of the military, you should definitely consider a military loan  if you have less than perfect credit.

Tribal loans are offered by Native American tribal lenders and generally carry the highest fees out of all personal loan types. These types of lenders are federally recognized entities, but they do not typically operate according to state laws. For this reason, you may find that tribal lenders often times go beyond the limits of many state laws, and this may include extremely high interest rates and loan amounts that exceed state law limitations. We do not recommend using tribal loans because they are deemed by many to be illegal. However, they are listed here for your reference.

Now that you have a basic understanding of each loan type, you can begin your search for a lender. Be sure to read the fine print and understand the terms of the loan before applying.


Construction Loan Pros, Cons #best #car #loans


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Construction loan has more cons than pros

Dear Real Estate Adviser,

I want to build a new home, and the builder wants me to get a construction loan. I don’t fully understand what that is. Can you tell me the pros and cons of this type of loan.

Dear Diane,

It’s the type of loan that is most convenient for the builder — but not always for the buyer. You would finance the cost to construct the house rather than buying a house that’s already been constructed by the builder. These are often called “story loans” because your lender will want to get a very thorough construction-plan narrative and timeline before it will approve funding. Lenders are not a big fan of fiction, by the way.

But such construction loans can be tough to acquire for individuals these days. For peace of mind, I’d put the onus on the builder and ask him to carry the loan. That way, the contractor or design-build firm gets your design, you OK it, he builds it and you don’t have to take possession until it’s completed to your satisfaction. The builder is more motivated to finish work on time this way.

Either way, make sure your builder checks out. Ask for references, check with the attorney general’s office, obtain a credit report, and check for lawsuits and outstanding liens. One home inspector friend of mine says you should go to city hall and check with a few customers not listed as references. Their names will appear on building permits.

If your builder won’t agree to handle the loan and you decide to carry it, here is what will happen. Funds are typically disbursed in stages as the project progresses, a process that can be a hassle for an individual. You will be required to make only interest payments during construction, which will probably be at a higher rate than the rate on your permanent mortgage — a home loan that will kick in only after the project is completed.

You will want to get the place livable and exit from the construction-loan phase as soon as possible. Many lenders require that a certificate of occupancy be issued before they will finance the permanent loan. Lenders typically allow for overruns and changes as construction progresses via a reserve account. Unused overages are simply credited back after the house is finished, while outstanding shortages are added to the loan balance.

Beware! Anything not in the initial contract will cost you extra. Builders are always looking for add-ons and their ensuing markups, which are huge profit centers for them.

You should know that one of the most common complaints we hear about new-home construction is that construction typically takes longer than planned and usually comes in over budget. If you obtain the construction loan, I suggest you structure your contract to call for a late-completion penalty that the builder would pay by assuming a chunk of your interest payments.

Do your homework and negotiate everything. And be ready, by the way, to show up at the construction site at every major phase of construction to make sure you are getting everything you paid for.

Good luck!

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How Do FHA Loans Work? (Pros and Cons) #home #equity #loan


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FHA Loan Basics

By Justin Pritchard. Banking/Loans Expert

Justin Pritchard helps consumers navigate the world of banking.

Loans from the Federal Housing Administration (FHA) are popular options for borrowers because they allow you to buy a home with a relatively small down payment. Designed to promote home ownership, FHA loans make it easier for people to qualify for a mortgage. But they’re not for everybody, so it pays to understand how they work and when they work best

What is an FHA Loan?

In other words, the offers a guarantee to your bank: if you fail to repay the mortgage, FHA will step up and repay the bank instead. Because of this guarantee, lenders are willing to make large mortgage loans in cases when they’d otherwise be unwilling approve loan applications The FHA, an agency of the United States government, has plenty of dough to deliver on that promise.

Why are They so Great?

FHA loans are not perfect, but they are a great fit in some situations. The main appeal is that they make it easy to buy property, but don’t forget that those benefits always come with tradeoffs.

Here are some of the most attractive features:

Down payment: FHA loans allow you to buy a home with a down payment as small as 3.5%. Other loan programs generally require a much larger down payment.

Other peoples’ money: it’s easier to use gifts for down payment and closing costs. In addition, sellers can pay up to 6% of the loan amount towards a buyer’s closing costs. You’re most likely to benefit from that in a buyer’s market, but those do come around from time to time.

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Assumable: a buyer can “take over” your FHA loan if it’s assumable. That means they’ll pick up where you left off – benefiting from lower interest costs (because you’ve already gone through the highest-interest years). Depending whether or not have changed by the time you sell, the buyer might also enjoy a low interest rate that’s unavailable elsewhere.

A chance to reset: If you’ve recently come out of bankruptcy or foreclosure, it’s easier to get an FHA loan than a loan that does not come with any government guarantee (two or three years after financial hardship is enough to qualify with FHA).

Home improvement: certain FHA loans can be used to pay for home improvement (through FHA 203k programs)

Qualification: it’s easier to qualify for an FHA loan.

How do you Qualify for an FHA Loan?

The FHA makes it relatively easy to qualify for a loan. Again, the government guarantees the loan, so lenders are more willing to approve loans. However, lenders can (and do) set standards that are stricter than FHA requirements. If you’re having trouble with one FHA approved lender, you might have better luck with another.

Note: you never know until you apply. Even if you think you won’t qualify after reading this page, talk with an FHA approved lender to find out for sure.

Income limits: there are none. You’ll need enough to show that you can repay the loan (see below) but these loans are geared towards lower income borrowers. If you’re fortunate enough to have a high income, you aren’t disqualified like you might be with certain first time home buyer programs.

Debt to income ratios : to qualify for an FHA loan, you’ll need to have reasonable debt to income ratios. That means that the amount you spend on monthly payments needs to be “reasonable” when compared to your monthly income. In general, you have to be better than 31/43, but in some cases it’s possible to get approved with D/I ratios closer to 55%.

Example: assume you earn $3,500 per month. To meet the requirements, it is best to keep your monthly housing payments below $1,225 (because $1,225 is 31% of $3,500). If you have other debts (such as credit card debt ), all of your monthly payments combined should be less than $1,505.

To figure out how much you might spend on a mortgage payment. use our online calculator .

Credit score: borrowers with low credit scores are more likely to get approved if they apply for an FHA loan. Scores can go as low as 580 if you want to make a 3.5% down payment. If you’re willing and able to make a larger down payment, your score can potentially be lower still.

Loan amount : there are limits on how much you can borrow. In general, you’re limited to modest loan amounts relative to home prices in your area. To find the limits in your region, visit HUD’s Website .

How do FHA Loans Work?

The FHA promises to pay lenders if a borrower defaults on an FHA loan. To fund this obligation, the FHA charges borrowers a fee. Home buyers who use FHA loans pay an upfront mortgage insurance premium (MIP) of 1.75%. They also pay a modest ongoing fee with each monthly payment.

If a borrower defaults on an FHA loan, the FHA uses those collected insurance premiums to compensate the bank.

Why Not Use an FHA Loan?

While they come with appealing features, you may find that FHA loans are not for you. They may not provide enough money if you need a large loan. But the main drawback is that the upfront mortgage insurance premium (and ongoing premiums) can cost more than private mortgage insurance would cost.

In some cases, you can still buy a house with a very little down using a standard loan (not an FHA loan). Especially if you’ve got good credit. you might find competitive offers that beat FHA loans.

As always, you should compare offers from several different lenders – including FHA loans and conventional loans – before you agree to anything.