FHA Mortgages

The Professionals and Cons of FHA Loans


When looking to buy a home, deciding which type of loan to want and which ones to qualify for can be difficult. If you have a lower credit score or don’t have a 10% down payment in the bank, a Federal Housing Administration (FHA) loan may be a good option for you.

FHA loans are home loans guaranteed by the federal housing administration. The government’s goal of guaranteeing the loans is to help more people buy homes even if they do not have the same resources as others. Like all loans, FHA loans have advantages and disadvantages.

Pros: Lower down payments / lower credit score

FHA loans are intended for people who are not in a perfect financial situation. FHA loans can generally be approved for people who have lower credit scores or have gone through foreclosures or bankruptcy. Even if you have problems with your credit, you may still be able to buy a home, which can help you rebuild your credit.

You can get away with a lower deposit as well. Sometimes as low as 3.5%, which can be great if you’re not saving a lot. In contrast, most traditional loans require a minimum of 10% down payment.

Pro: Do ​​it yourself

In order to get an FHA loan, not only must you qualify, but the property as well. All properties approved by the FHA must be certified as safe and worth living in, meaning that they are ready to move into when purchased. You won’t get stuck on a property that you have to spend time and money on before your family can move into it.

However, if you want to make home improvements, an FHA 203 (k) loan is also an option. This type of loan enables you to make the improvements and include these costs in the loan. It can be beneficial if you have to make a few adjustments to make the home the best for your family.

Pro: Housing options

There are many types of houses available when an FHA loan is used. Other loans are subject to the approval of the lender for the property. However, FHA loans allow you to purchase a single family home, condominium, apartment building of up to four units, or permanent, permanent home. If you buy an apartment building with several residential units, you can also rent out the other residential units as long as you live in the house for at least one year.

The flexibility of the loan options gives you the opportunity to find the exact fit for your circumstances.

Con: Higher mortgage insurance

While you don’t have to pay for private mortgage insurance, you do need to pay for mortgage insurance on your FHA loan. The mortgage insurance costs remain for the life of the loan. These additional costs can make the FHA loan more expensive than a traditional loan over time. Be sure to Calculate FHA loan payments while you decide what is the right choice for you.

Con: Don’t save for the house you really want

Because of the additional requirements on the property to qualify for an FHA loan, some sellers are reluctant to sell to FHA buyers. That hesitation could cost you the home you want. FHA loans tend to cost more over the life of the loan due to lower down payment requirements and lower creditworthiness. Either it has a higher interest rate or you won’t pay it off anytime soon.

Make sure that you look at the cost over the life of the loan. Saving for a traditional loan down payment may be a better option than buying now.

Con: minimum property standards

While Minimum standards for real estate can be a pro if you’re looking for a ready to move home it can’t be if you’re looking for something that takes some work for a great return on investment. The FHA loan can be approved for a property with some cosmetic issues, but it is unlikely to be approved for a property with structural or security issues. That great fixer-upper investment that you had your eyes on may not be eligible for an FHA loan if there is too much structural damage.

What’s best for you?

Your personal situation should determine the type of loan that you are looking for. Each type of loan to consider has advantages and disadvantages. FHA loans can be of great help when you find the right property and need a little help to qualify for it. Just make sure that you are also aware of the pitfalls of an FHA loan.

Tags: , , ,