Pro's and Con's of FHA Mortgage Loans

If a conventional North Shore home loan isn’t an option, you may be wondering if a Federal Housing Administration (FHA) loan would be suitable for you. The FHA is a Federal government agency that was created by the National Housing Act of 1934. The FHA loan program insures loans made by banks and other private lenders. Here are some pros and cons to FHA mortgage loans to consider:

Pros:

• You may be eligible if you have some blemishes on your credit report. If your credit score is lower than 600, you may not qualify for a conventional loan but could qualify for an FHA loan.
• You can still purchase a home if you have a small down payment—around 3.5% is all you’ll need.
• If your mortgage payments account for a large portion of your paycheck, you could be eligible to spend up to 57% of your total income on monthly debt obligations; such as your mortgage, auto loans, child support, and credit card payments.
• If you sell your home, a new buyer could assume your loan, making rising interest rates less of a concern.

Cons: 

• You’ll need to pay mortgage insurance if your down payment is less than 10%. Because FHA loans are considered risky, mortgage insurers want both an upfront and a monthly premium for any portion of your mortgage exceeding 80% of your new home’s value. 
• Fees: 1.75% of the loan amount is due at closing, along with an annual fee, around 0.8%. If your financial situation improves or if you build equity in your home, the only way to eliminate these fees is to refinance your loan.
• If you’re looking to purchase a home that’s considered a “fixer-upper,” the FHA has minimum standards, and you may have a difficult time getting a loan. 
• There are loan limits for each county that could be as low as $270,000. This makes FHA loans more appealing in lower cost markets. 

Is an FHA mortgage loan right for you? We’re here to answer your questions. Contact your local North Shore real estate agent to learn more.