Are you new in the real estate industry, looking for a mortgage? We discuss how an FHA mortgage can be the right option for financing.
When you are craving your favorite food, you will need to have the right ingredient to cook it. But what will you do in the absence of those ingredients? That is when you need to try some different food to fill your appetite.
No, this is not a food website. This was us giving you an example of different types of mortgages. Almost all mortgage loan requires borrowers to have a high credit score.
That is when you will be asking yourself the question, “I am new to the investment landscape with not much exposure to debt. How will I grow my credit score?” Well, the credit score is like that missing ingredient to cook your favorite food.
In that situation, it is not necessary that you will have to starve. You can still go for the FHA mortgage.
The federal housing administration (FHA) mortgages government-backed loans, primarily for new or middle-income borrowers. If you don’t meet the qualification criteria of the conventional mortgage, the FHA mortgage be easier to access with not much strict eligibility.
You may ask the question, “Why are the lenders taking such a risk by offering leniency in the qualification criteria?” Well, that is because FHA insures your loan. So, if you default on the mortgage, the FHA will incur a portion of the losses.
Yes, the requirements of an FHA mortgage are not as extensive and strict as some other mortgages. But it doesn’t mean everyone is eligible. The eligibility criteria vary from time to time.
As of June 2023, here are the requirements for the approval of your FHA loan.
Now that you know how the FHA loan works, you would want to know whether to opt for it or not. For that, let’s discuss the pros and cons of the FHA mortgage.
We will start by talking about the benefits of an FHA loan.
The upfront investment, like down payment and closing costs, can usually eat up a large chunk of your saving and finances. When you go for the FHA mortgage, you don’t have to invest such a high amount.
While other mortgages may require a down payment of 10% to 20%, your FHA mortgage can even be approved with a 3.5% down payment. The same is the case with the closing cost, as it is usually lower than other mortgages.
Even a modest credit score and debt-to-income ratio can have your FHA loan approved. In addition, when usual mortgage interest rates are based on the current market situations, an FHA mortgage is dictated by factors like your income, credit score, and down payment.
That means the FHA loan accommodates people of different incomes to have their loans approved.
As we are talking about the pros and cons of the FHA mortgage, we can’t forget the long list of options you get with this loan. You are not restricted to investing in specific types of real estate.
You can go for a FHA loan to invest in a single-family home, condo, multi-family home, and more. The only thing you may need to do is convince the lender to approve loans for these properties. But an FHA mortgage does not prevent you from investing in such properties.
Our quest to discuss the pros and cons of mortgages continue. Let’s talk about some potential disadvantages of the FHA loan.
You can’t borrow as big a loan amount as you want. There are limits to the FHA loan. These limits change over time and are different for various states around the US.
There are primarily two factors that determine the FHA loan limit.
- The property prices in the area.
- The property of types that you are buying?
This can halt your progress and not allow you to buy high-valued properties.
As the FHA mortgage is a government-backed loan, there are a set of specific safety and health standards that the property should meet. If your desired property does not meet the set benchmark, you might not have your FHA loan approved.
Pros and cons of the FHA mortgage are about discussing how this loan is different from other mortgage options. In the usual traditional mortgages, you can escape the monthly payment and not have to invest in private mortgage insurance(PMI). All you needed was to pay a down payment of 20% or over.
But when going for an FHA loan as your financing medium, paying the PMI is a necessity. So, that is one monthly expense that you cannot escape.
Knowing the pros and cons of the FHA mortgage would tell you that it is the go-to option for new real estate investors and people of low-middle income. If that is who you are and you want to use the FHA loan to finance your new home, HAR gives you the perfect Launchpad.
We are a Texas-based real estate to elevate your living status. Our expert real estate agents are waiting to give you the advice you need
Does the FHA loan have any income restrictions?
FHA loan is open to anyone who wants to take advantage of it. There is no income-based restriction for the borrowers.
Can my FHA loan be approved even with outstanding student debt?
Yes, the lender can approve your loan with outstanding student debt. The only effect it will have is if you are making monthly debt payments, it will impact your debt-to-income ratio, which is one of the factors for approving the loan.
Will having a home foreclosed stop me from qualifying for an FHA loan?
You are eligible to qualify for the FHA loan 3 years after your foreclosed home was sold.
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