Learn This Beginner’s Guide to FHA Loans

The benefits and drawbacks of FHA loans

Before deciding on the type of loan to employ, you should balance the pros and cons. A house is a large investment with many factors to consider.

 

• Advantage: Lower qualification standards. FHA loans are typically easier to obtain than other types of loans. If you have had credit problems or bankruptcy in the past, this option may be perfect for you.

• Downside: Lower loan limitations. FHA loans have far lower lending limitations than conventional loans. If you wish to buy a home that is more than these limits, you either use a different sort of financing, put more money down, or choose a new house.

• Advantage: Lower down payment. This is one of the primary benefits of an FHA loan. Homeownership can become a reality for individuals who would not otherwise qualify with as little as 3.5% down.

• Downside: Mortgage insurance. MIP is required for FHA loans. The amount you pay is determined by the value of your house and your loan-to-value ratio, but MIP will ultimately raise the total cost of your loan. In contrast to conventional loans, the MIP on an FHA loan does not disappear when the LTV is dropped to 78%.

 

• Advantage: Competitive interest rates. FHA loans may have interest rates that are comparable to or lower than conventional loan rates. This can help you save money on your monthly payments.

• Downside: Only primary residence. FHA mortgages are available for both single-family and multi-family properties, but they can only be used for your principal residence. This means that if you want to buy a vacation or second home, FHA loans are not for you.

How to Reduce the Cost of Your FHA Mortgage

FHA loans have low-interest rates and terms. MIP and closing fees, on the other hand, might raise the entire cost of your loan. You have a few options for making your loan more reasonable and lowering your monthly payments.

• Do some comparison shopping. It’s a good idea to speak with multiple lenders. There may be a significant difference in terms offered in some circumstances, which could save you thousands of dollars over the life of your loan.