
Home buying season is upon us, so, if you’re a first-time home buyer, you have a lot to think about! It’s so important to understand the differences in your home loans options and the best thing to do is to talk to a mortgage professional.
Before you do, here are some FHA basics:
FHA stands for Federal Housing Administration. It’s a U.S. government agency, a part of HUD (Housing and Urban Development), which insures home loans for FHA approved lenders.
FHA Loans are easy to qualify for. They are more forgiving than others when it comes to some credit history problems. For example, FHA would likely qualify a buyer for a home loan with as low as a 580 credit score.
One reason many first-time homebuyer’s go for them is because of the low down payment option. Only a minimum of 3.5% of the sale price is needed up front! Many also offer to include the closing costs right in the loan, which means less up-front cash.
In some cases, FHA allows buyers to have a manually approved debt-to-income ratio, while most lenders require 43% or less.
What’s really awesome is FHA will allow a buyer to receive gift money to help with closings costs! Many first-time home buyers receive help from relatives or employers (ummm… need to talk to my company about this perk!)
FHA has no prepayment penalties. Why not make additional payments to my principal and lower my interest costs, right?
On the flipside, FHA Home Inspection requirements are way more strict than conventional. You can just about guarantee you won’t be getting a foreclosure with an FHA. Maybe an FHA 203k will work but I’ll save that for another time.
Another small drawback is that FHA requires Mortgage Insurance, unless you put over 10% down on the loan.
In my experience, the worst drawback I’ve had to deal with is the seller’s preferring a conventional loan offer over an FHA. They perceive FHA to be inferior mostly because their agents guide them this way because they know the Conventional loan offer will have an easier inspection. That’s something to consider if you come into a multiple offer situation. It’s not always the case.
To Summarize:
- Easier to qualify for
- Lower Down-payment
- Allows gifts for closing costs
- Low interest rates
- No prepayment pentalties
- Requires Mortgage Insurance
- Sometimes perceived as Inferior
- Strict home inspection requirements
I’m sure if you’re just beginning to think about purchasing a home this may lead you to more questions. Always feel free to email me at theterritoryboss@gmail.com with any questions.