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10
Buying a Home? The Pros and Cons of FHA
At Cressy & Everett Real Estate, our real estate agents are experienced in all of the many programs that help you buy a home. A variety of programs are available for first-time home buyers and prospective buyers with different needs.
Navigating these programs is not always easy, but the right expertise can help. One program that many people ask us about is the Federal Housing Administration loan (FHA).
FHA mortgage loans are intended to put homeownership within reach of first-time buyers. Even those who may have had financial difficulties in the past can succeed in securing an FHA home loan if they can meet some fairly straightforward requirements.
How Does an FHA Home Loan Work?
Despite the name, the FHA home loan isn't actually provided directly by the government.
Instead, the government insures the loan, which reduces the risk for lenders, who have less to lose if a homeowner is unable to make mortgage payments in the future. In return for this insurance, the lenders are required to meet various standards in how they structure the loan.
FHA standards are intended to protect potential homeowners from any form of predatory lending or other conditions that might prejudice the process against them. These standards lead to favorable loan terms but require the home buyer to provide extensive financial documentation.
Pros of Using an FHA Home Loan
- Down Payments
It wasn't that long ago that most lenders expected a down payment of 20% or more on a home. With the FHA home loan, lack of a down payment will not bar you from achieving your goals. Your down payment can be as small as 3.5%, giving you more home options. - Credit History
Even if you have a low credit score, you can still obtain an FHA mortgage loan. Instead of the credit score used by the typical lender, FHA loan eligibility is largely determined by current income. The income documentation you submit determines your loan amount. - Home Improvement
Certain variations of the FHA home loan allow you to fund your home and pay for any pressing home improvement projects at the same time. This allows you get full value from a "fixer-upper" property that you may be able to buy with a smaller loan package overall.
Cons of Using an FHA Home Loan
- Longer Loan Terms
A low down payment means you'll need to finance a more substantial amount of money and will be paying your loan for a much longer period of time. Be sure to craft a budget and verify you know how much house you'll be able to afford. It may be advisable to wait and save a down payment. - Extra Costs
Using an FHA loan means you'll need to pay an extra monthly fee for mortgage insurance, which can add many thousands of dollars to costs over the lifetime of your loan. There's also an upfront fee of 1.75%. Mortgage insurance premiums can also add quite a bit to monthly payments. - Property Limitations
For a property to qualify for an FHA home loan, it must meet certain standards, which includes health and safety rules that may require extra steps such as a home inspection. Homes that need significant work and certain foreclosures are disqualified from FHA.
An FHA loan can be an excellent choice, but it's not a sure thing. You should always have the right advisers in your corner to help you make the best selection on property and financing choices. The right decisions now can save thousands.
Contact Cressy & Everett Real Estate to find out more. We look forward to meeting you!
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