Are you in the market for your first home?
Like most Americans, owning a home is the ultimate dream. You’ve worked hard to get here and now you’re ready to join the homeowners’ club. Thumbs up!
However, unless you’re a cash buyer, buying a home can be a complicated process. The mortgage application process can be long and tiring, and you have to start by choosing the right mortgage for your needs.
Are you considering an FHA loan? Federal House Administration loans offer unique advantages over conventional mortgages, but they also have their fair share of downsides.
In this article, we’re sharing the pros and cons of buying a new home with an FHA loan.
Low Credit Score Requirement
The friendly requirements of FHA loans are one of the biggest reasons most first-time homebuyers, especially those whose credit isn’t so good, overlook conventional loans in favor of FHA-backed home loans.
Unlike conventional loans that typically require a credit score of no less than 620, you can get approved for an FHA loan if your credit is as low as 580.
So, if your credit history is shaky, don’t give up your dream of being a homeowner just yet. An FHA loan could be all it takes for you to own a home.
If your credit is down because of a high debt-to-income ratio, worry not. With a DTI of 43 percent or even higher, you can still get approved for an FHA loan.
Low Down Payment
When buying a home via an FHA loan, you have to swing a down payment. This is 3.5 percent of the home’s cash price.
If that sounds like a lot of money to you, wait until you see what you’d be asked to pay when taking out a conventional mortgage, especially if your credit isn’t good.
It’s true that some conventional mortgages require a 3 percent down payment. However, if you pay less than 20 percent, you’ll have to take out private mortgage insurance (PMI).
Lower Loan Limits
Are you on the hunt for a million-dollar home?
If yes, you better be paying for it in cash or going in for a conventional mortgage because, with an FHA loan, you can’t get that amount. The FHA sets loan limits for each county in the country, but in general, the amount ranges from $350,000 in low-cost counties to about $550,000 in high-cost counties.
Primary Residence Limitation
You’ll only get an FHA loan if the home you’re buying will be your primary residence. This can be limiting, especially if you’re planning to move out of the home and rent it out in the future or use it for any other investment purpose.
You Can Buy a New Home with an FHA Loan
Buying a new home with an FHA loan is ideal, especially if your credit isn’t looking up. However, there are some cons that should make you think twice about going in for the loan. The point is you now have the information you need to make a smart decision.
Need more tips on real estate, mortgages, and homeownership? Explore our blog!
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