Tuesday, 15 October 2019

Is It a Good Idea To Get an FHA Loan?

There is a lot of misconceptions about FHA loan, so, I feel like we need to clear that up first. It's not just for first-time homebuyers. You can have multiple homes and still use an FHA. And there is no income limit. Some of the stuff about FHA that gets misconstrued is mortgage insurance.

What Are The Good Thing About FHA?

Regardless of how much you put down, FHA has mortgage insurance. The mortgage insurance annual premium, whenever you are putting down less than 20% or getting an FHA loan, you are going to have to have mortgage insurance. It's very affordable especially if you don't have great credit.  If you have perfect credit, I don't know if FHA is going to be the best choice for you because I think with a conventional mortgage you will be able to get less expensive mortgage insurance. But if your credit score is not great, FHA could save you a ton of money every month.

Interest Rate

With interest rates, FHA is also lower than conventional rates. 

What Are The Bad Thing About FHA?

I am going to tell you what bad about it. First of all, FHA doesn't care if you put down 50%, 20%, 30%, 10%, you are going to pay an upfront mortgage insurance premium that gest financed into your loan of 1.75%. For the privilege of doing an FHA loan, they are going to tap 1.75% onto your loan balance. No matter what, even if you have an 800 credit score, that is the way they roll. If you have good credit and you are putting 5% down, we most likely would not be looking at FHA because the 1.75% is not going to make sense. The other thing that is bad about FHA is that if you are putting down one of the lower payment options, the mortgage insurance is for the life of the loan. 

FHA changes their rules quite a bit, I have seen the mortgage insurance be able to be taken off, not be able to take it off, it can fluctuate for sure, but as of this minute, if you buy a house with FHA with 3.5% down, you will have mortgage insurance unless you refinance out of that loan or you sell that house. If you are thinking it's a 3-years house then you can go for FHA, but if it's a 30-years house you plan to live in, that is definitely something you want to consider. Because we are in an environment where interest rates are going up. So, the odds of you refinancing into a lower rate now is high. You want to make sure that your lender is having that conversation with you about why you should go for FHA and what conventional looks like. The long-term repercussions of each loan.

You don't want to just have someone go, oh yeah, they qualified me for FHA, why did they qualify you for FHA?

Because unfortunately, government loans are one of the largest profit centers in terms of what lenders and banks make off of loans. They make the most money off of government loans. So, you want to make sure if you are doing a government loan there is a legitimate reason, and there is a lot of great reasons to do an FHA loan.

  1. If you had a short sale or foreclosure, FHA is more forgiving.
  2. If your debt-to-income is higher, FHA is more forgiving.
  3. If your credit score is not great, you can get a much lower payment with FHA.

There is a lot of positive reasons why you would want to use that loan. You want to make sure that you know why you are using that loan. Because, if you have an 800 credit score and 10% down and nothing derogatory in your past, I don't really know why you would be using it.

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