Not surprisingly, an FHA loan is the most popular choice for first-time homebuyers because of its more flexible qualification standards.
First of all, what is an FHA loan?
It’s a mortgage insured by the Federal Housing Administration, allowing for
- a downpayment as low as 3.5%
- a lower credit score
- lower closing costs
Who’s eligible?
Everyone. Although FHA loans are popular with first-time homebuyers, anyone can take advantage of the program.
What are some of the PROS of an FHA loan?
- No income limits. Higher income earners with credit problems can qualify with lower downpayment.
- Housing options. You can use an FHA to buy a multi-family, 2-to-4 unit residence with 2.5% down and qualify with the rent on the other unit, as long as you live in the home for one year.
- You’re eligible for FHA Streamline refinances. This is a huge benefit for clients who, when they first bought their home, didn’t have the ideal credit score to get the best rate. After a 210-day waiting period, they could be eligible to refinance and reduce their interest rate.
What are some of the CONS of an FHA loan?
- Lower loan limits. Each year, the FHA sets loan limits by county. This may impact how much home you can buy with an FHA loan, especially in high-cost areas.
- Limited to a primary residence only. You can only utilize FHA loans for the home you plan to live in as your primary residence. To buy a vacation home or rental property, you’ll need to get a conventional loan.
- Private mortgage insurance (PMI). For FHA loans, you must pay PMI for the life of your loan. The only way to get rid of it is by refinancing it to a conventional loan at a later date.
If you have any questions about the loan options available to you, or simply want to run the numbers to see how much home you can comfortably afford, visit https://www.homespiremortgage.com/loan-officer-search/ to find a Loan Officer near you.