FHA loans are easy to acquire. They are accessible to people with a bad credit score, hence easy to get one for most. They are also quite affordable. Also, FHA loans are available for a low down-payment amount.
However, before considering this loan, it is good to think carefully about what you are getting for yourself.
Here are some of the pros and cons of FHA loans to help you.
The pros of FHA loans
Low Credit Score
For FHA loans, you can acquire them even when you have a low credit score. It allows up to 3.5% down payment, therefore allowing someone to save the money they could have used in mortgage and use it on other essential things. Even with a credit score that is as low as 580, you can still acquire the loan.
This advantage helps most people to acquire homes in a short time, saving them time and money. It provides a good option if you are low on savings.
FHA loans are easy to acquire and have efficient mortgage plans. When you have previous credit shortcomings, you can still receive the loan. Besides credit problems, you can obtain the loan with previous debt history, including bankruptcy.
With FHA loans, someone with a bad credit score can get equal rates with the rest. The rates are the same for all. FHA loans have competitive rates compared to other forms of mortgage loans.
FHA loans offer the opportunity to refinance your home. Refinancing is smooth, not considering your credit score or your financial status. You can add improvements to your home at ease. You need only update mortgage payments, and refinancing your loan becomes less tedious.
FHA loans are Assumable
Unlike most mortgage loans, FHA loans have assumable property. That is, as you sell your house, the loan is transferred to the buyer as long as he or she has met the right requirements and regulations for loan assumption. Assumption clears the path for you as you look to sell your house. Buyers get to assume a lower rate if, at the time you are selling your house, the rates are low.
The Cons of an FHA Loan
FHA loans come with high-interest rates compared to other mortgage loans.
In addition to high rates, they require upfront insurance for the first batch. The other set of insurance is paid yearly. There is the option of putting that insurance amount into the loan term. To add salt onto injury, you are required to pay monthly premiums for specific FHA loan terms. It can become a financial burden.
Health and Safety Guidelines
While other loan plans only consider home values, FHA loans have quite ambiguous regulations. The homes must go through several checks to ensure they are not faulty in any way. Inspections are done to uncover any irregularity in the house, including decay and leaks. Without these defections being rectified, the FHA loan approval can be difficult. Health and safety guidelines should be attained.
FHA mortgage loans offer low down payments option. If you take this option, it most likely means you do not have enough capital. Loans require a strong financial background. Engaging yourself in this type of loan without a well financial preparedness may be a risk not worth taking. Interest rates will be on your neck now and then.
Sellers may back out
FHA loans make sellers reconsider. Most sellers are not confident with buyers who are using an FHA loan. It reduces the chances of really selling the house to such a buyer.
You cannot use FHA loans to buy investment properties. They can only purchase primary homes. It means it is not favorable if you are looking for a property to start businesses in. Also, fixed loan terms and options make it less flexible. While most may benefit from the plans that it gives, it might be a restriction for others. Other loan plans are flexible in these terms.
As you look to get your first mortgage, this information should prove helpful. It will guide you to know whether an FHA loan is most favorable for you or not. Washington DC mortgages are available with Gregg Busch and First Stavings Mortgage, and experts are here to assist you with any information that you may require.