You decided you want to buy a new home. That’s great news! You need to know how to pay for it. Some people can’t simply write a check and go on, but most of us don’t have that luxury. We have to apply for mortgage loans. So which loan is the right one for you? Well, you have a few various financing options available to you, one of which is the old FHA Loan.
A Federal Housing Administration loan (FHA) is one that is federally insured and gives protection to lenders against borrower default for the term of the loan. It was a Housing and Urban Development (HUD) creation for encouraging new home ownership for Americans who had low to moderate income. But today the market has changed and the down-payment requirements have loosened up. The closing costs have become more practical, like in the 3.5% range, so a lot of people are using the FHA loans for financing their homes. Why not, with solid fundamentals such as that? But they still aren’t for everybody. Let me explain why:
Pros of FHA Loans:
Moderate Credit Demands – We all know that having good credit is vital to making big purchases. Many times it’s the sole deciding factor. But things happen to everybody and a lot of credit hits are taken by many. These FHA Loans will usually overlook a bad credit record providing you have the right documentation that explains in acceptable detail why your score took the hits.
Low Costs – One of the very best pros of FHA loans are the low closing costs and a low downpayment requirement. They only ask around 3.5% for the down-payment, and they’ll roll your closing costs into the monthly mortgage payment. You can’t beat that.
Easy Qualification – Aside from job history, your credit scores, and various other information needed for loan application, it’s highly recommended that you only spend 29% of your total monthly income for your mortgage. Lenders will allow 35% of a person’s gross monthly income to be used for the house payment only if you will still be able to pay the rest of your debts and expenses.
Cons of FHA Loans:
Loan Amount Limits – The amount you borrow is limited by the FHA. If you want a home that exceeds their loan limits, then you’ll have to find a cheaper one or looks elsewhere for your loan.
Restrictions – Not every type of property is eligible for this financing. Many properties and condos requiring repairs can run into some hard FHA restrictions to deal with. This is frustrating for buyers and limits the amount of people wanting to buy.
When it gets down to it you have quite a few options when you loan shop. So take your time and do your homework and make good decisions.