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October 2020

Federal Housing Administration Loans

October 9, 2020

Couple reviewing paperwork while sitting with their laptopAre They Right For You?

If you're looking to purchase a home, but are nervous about your credit score, or debt obligations, an FHA (Federal Housing Administration) loan may be a good choice.


Advantages of an FHA Loan

  • There are minimal credit requirements which can help ease your mind and the mortgage qualifying process. According to the FHA, loans may currently be granted with little or no credit history, and/or less-than-perfect credit.

  • The initial down payment on the home will be less 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%.  

  • Qualifying for an FHA loan may still be possible, even with a substantial amount of debt. Most mortgage loans limit a buyer’s monthly home and debt spending to a certain percentage of their income. While FHA loans have the same stipulations, they generally allow home and debt spending up to higher ratios of the buyer’s income, which can be helpful.

  • FHA loan interest rates are fixed and often 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.


Potential Disadvantages of an FHA Loan

  • 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) is more expensive for those who get FHA loans. The initial low down payment on the home can result in higher-priced insurance payments. There is an upfront mortgage insurance fee along with a monthly premium to be paid over the life of the loan.

  • FHA loans will not allow you to flip a house. They require the property to be inspected and to qualify as FHA-eligible. This standard inspection generally prevents ‘fixer-uppers’ from qualifying, so if you're looking to find a house to flip, the FHA loan would not be an option.

  • 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.


Borrow Smarter

We understand that every situation and every home is unique. Mortgages can be complicated, but we make it easy. We look forward to working with you on your specific need to find the best possible solution. 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.” 

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Article adapted from BALANCE Financial Fitness Program.

Posted in: FHA loan

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