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Mortgages backed by the Federal Housing Administration are often overlooked in cities where housing costs are high.

But you might be surprised to find that an FHA-insured mortgage is the best choice for you - even in an expensive urban area.FHA loans require only a small down payment, and more of the closing costs can be financed than with conventional loans. In addition, these government-backed loans generally are assumable, meaning that if you buy a property with an FHA loan, the next buyer can take over the loan from you at the same interest rate.

But obtaining an FHA-insured loan requires more paperwork than a conventional loan, and some real estate agents don't like to deal with that. Therefore, many buyers never really get to consider whether FHA might be their best option.

Mary and John, who recently bought a condominium in Washington, D.C., were told by a real estate agent that an FHA-insured loan was not a good choice for them since most of the properties they were considering exceeded the $124,875 mortgage limit on FHA loans.

But the condo they bought fell within the ceiling for FHA-backed loans - $124,875 in high-cost cities like Washington. If Mary and John had used an FHA-backed mortgage, they could have made a lower down payment and would have had the advantage of an assumable mortgage.

Some home buyers mistakenly assume that FHA-insured loans are for poor people. But the median income of home buyers who used FHA this spring was $37,800. There is no upper income limit for FHA buyers.

Right now, FHA mortgages have an interest rate of about 9.3 percent. That's slightly lower than the going rate for conventional 30-year fixed-rate mortgages. But if mortgage rates rise to 11 percent or 12 percent in a few years, the 9.3 percent rate will be very attractive. FHA loans can be assumed by buyers who plan to live in the house and meet FHA qualifications, but not by investors.

About one in five homeowners have FHA-insured mortgages, which are the loan of choice for most first-time buyers. A survey by the National Association of Realtors found that last year 62 percent of first-time buyers used FHA, up from 43 percent in 1984.

FHA has recently increased the amount of money required at closing in an effort to reduce the number of defaults on FHA loans. Despite that increase, you generally need far less cash to buy a house with FHA than with a conventional loan.