Most first-time homebuyers think FHA home loans are perfect mortgage loans. You can contact any of the FHA lenders through FHA leads, and get an FHA loan for a down payment as low as 3.5 percent. What’s more! You don’t even need to have a perfect credit score to get approved. However, there are a few things you need to know about these mortgage loans before you jump into taking any action.
The interest rate that you get for your FHA loan will depend a lot on your credit score apart from various other factors. However, when compared to conventional mortgages, FHA loans come at higher interest rates.
Mortgage Insurance Premiums
The mortgage insurance is one thing that stops many from taking out FHA loans. In fact, there are two mortgage insurances you need to pay for, if you decide to go for an FHA loan – One is the upfront mortgage premium that you will pay at the time of closing (this comes up to about 1 percent of your loan amount). The other mortgage insurance is the annual premium that you be broken down and added to your monthly mortgage payments. This can range from 1.1% to about 1.15% of your loan amount.
Of course, even conventional mortgage loans involve the mortgage insurance charges if the down payment is less than 20%. However, the premium that you pay in a conventional mortgage would be lower than what you need to pay for an FHA loan.
If you are thinking about using an FHA loan to buy a condo think again. FHA has strict restrictions about the type of condos that you can buy using their home loans. Also, these rules are subject to changes.
Low Priority in Multiple-Offer Scenario
You may not exactly get the first preference if the homeowner has too many offers from buyers, especially from those with conventional mortgages. Most sellers think that they will have to pay a significant portion of the closing costs if they sell their homes to buyers with FHA loans. However, this is no more a strict requirement of FHA. Home-buyers of today can pay up the entire portion of closing costs all by themselves.
Rigorous Home Inspection Requirements
A home inspection may not exactly be your worry if you are taking out a conventional mortgage. But it is mandatory in case of FHA loans. The property that you are buying has to be safe, secure, and sound, if you want to buy it using an FHA loan. Although you can do away with minor repairs, there should be no physical deficiencies or issues with its structure.
Yes FHA loan has its own set of disadvantages; but if you don’t have the money to make the required 10 percent down payment of a conventional mortgage, it could be your best option. However, it is important that you do your homework to find out if this is the only option for you.
In a slow market where there is not much demand for properties, you might be lucky enough to get your offer accepted by the seller, irrespective of whatever type of loan you choose.