One great way finance a home purchase or refinance an existing mortgage is through the FHA home loan program. With more lenient lending standards and very little down payment required, the FHA loan as gain so much popularity.
For also 8 decades, the Federal Housing Administration (FHA) has helped put American families into decent homes by providing home loan programs. In fact, the latest mortgage application survey done by the Mortgage Bankers Association has revealed that the FHA shares of the total mortgage applications for the week increased. While that of the VA dropped and the USDA’s share remained unchanged, the FHA shares increased to 10.3 percent over a week.
With less rigorous requirements and low down payment, the FHA loan sounds like a perfect loan. It is true that the FHA loan is one of the best loans in the market, but there are always two sides to a coin.
We all know about its advantages. it is also healthy to look at the possible disadvantages of this loan to help you weigh this better.
A Lender May Override the FHA Eligibility Requirements
An FHA loan is a government-insured loan. This means that the loan is not originated nor funded by the administration itself. Rather, it insures that loan providing cushion to the lender in case of a default. It is a private lender that funds this home loan.
Because of this, the lender may have additional requirements other than that which FHA requires. For example, the minimum FICO score the FHA requires of a borrower would be 580 to qualify for a low down payment. A lender, however, may require a score of 620 or higher.
You Cannot Avoid the Mortgage Insurance
It is required for you to a mortgage insurance premium (MIP) if you take an FHA loan. All FHA Loan, that is. There is the upfront premium, which is paid once the borrower gets the loan, and the annual premium, which is paid on a monthly basis. Your loan term and down payment will determine how much MIP you will be paying.
Can you get rid of it? Many of the FHA loans today have characteristics that may not be eligible to have the MIP removed. One possible way to cancel it is to refinance the mortgage loan to non-FHA loan without a MIP.
These are the possible drawbacks with the FHA loan. Despite this, many still take advantage of it because of it is relatively more affordable than conventional counterparts. It is still best to shop around and look for many different options. This way you may find one loan that fits perfectly for your needs.