Are They Right For You?
You may be looking to purchase a home of your own but fear you cannot with a credit score that’s less than ideal. This is where an FHA (Federal Housing Authority) loan may be a better option for you.
Let’s go over the advantages and disadvantages of an FHA loan so you can decide if it’s the option you would like to pursue.
FHA Loan Advantages
Minimal credit requirements can help ease your mind and the mortgage qualifying process. According to the FHA loans may currently be granted with a credit score of 580. They may also be given to those who have little or no credit history.
The initial down payment on the home will be smaller than those of conventional mortgage loans. With other loans, you may be required to put down 5-10% of the purchasing price, but with an FHA loan, you may only have to make a down payment as low as 3.5%.
Even with a substantial amount of debt, qualifying for an FHA loan may still be possible. Most mortgage loans limit a buyer’s monthly home and debt spending to 36% of their income. However, FHA loans allow home and debt spending up to 43% of the buyer’s income.
FHA loan interest rates are fixed and lower than those of other mortgage loan types. This could help you save a lot over time on your interest payments.
Sellers have a higher percentage option for concessions than they normally would, if the buyer is using an FHA loan to purchase the home. Sellers may contribute up to 6% of the closing costs.
FHA Loan Disadvantages
If you have good to great credit, the low, fixed interest rate of an FHA loan may actually not be as low as you could otherwise get from another mortgage loan option. This could cost you thousands of dollars over the long run.
Private mortgage insurance (PMI) will be more expensive for those who get FHA loans. The initial low down payment on the home results in higher-priced insurance payments to make up the difference. There will also be an upfront mortgage insurance fee to be paid.
FHA loans require the property to be inspected and to qualify as FHA-eligible. This standard inspection will most likely prevent ‘fixer-uppers’ from qualifying, so if you wished to find a home to flip, the FHA loan may not be helpful.
The total amount allowed for you to borrow with an FHA loan changes from county-to-county. If you live in a county with a high demand for, but low supply of, homes, your FHA loan may not allow you to buy the home you were hoping for because its price does not land within the parameters of the loan’s allowable amount.
We understand every situation and every home is unique. We look forward to working with you on your specific need for affordable home ownership. If you have questions about what type of mortgage is right for you give us a call at 315-735-8571. If you‘re ready to start the application, click “Apply Now.”
Article adapted from BALANCE Financial Fitness Program.