Most homebuyers won’t be able to purchase their homes outright with cash, so they have to result to a loan. There are various types of home loan options out there. FHA loans are the best option for some people, but are they really the right path for you? There are both pros and cons to FHA loans you need to consider before jumping into one.
Pro: Reduction in Qualification Standards
If your credit score has recently been negatively affected, it may cause you to have a very difficult time when it comes to being approved for a mortgage loan. A mortgage broker may be brought in to help, but they can only do so much with a bad credit score. This is where your real estate agent or even the mortgage lenders themselves will suggest an FHA loan. The FHA loan or federal housing association loan was created for this very situation. An FHA loan allows the reduction of the typical qualification standards set by lenders. This means that you are highly likely to be approved even if you have less than a 500 on your credit score. In addition, other qualification standards are lowered, such as the minimum down payment required. This sees your down payment go from 6% to 3.5%.
Con: Restrictions With FHA Loans
Because the government is providing the loan, they want to ensure that their risk is as low as possible. Unfortunately, this often leads to your housing options being very limited. Want that fixer-upper in order to transform it into the home of your dreams? That may not be approved by an appraiser. Next includes the amount of house you are allowed to purchase. When you seek a conventional loan, you can obtain a loan for as much as your income and credit score allow. This is not the case with an FHA loan, where buyers are often limited to homes at the $356,362 level.
Are you located in Orange County or Riverside County, California, and want to know if an FHA is right for you? Reach out to us today.