The Pros and Cons of An FHA Loan

Considering using an FHA loan to purchase a new home? You would be wise to carefully weigh out the Pros and Cons that are associated with an FHA loan. We will go over several pros and cons so that you can make the best decision for you!

The Pros Of An FHA Loan

Low Down Payment: Down payments make up the majority of cash to close any purchase loan. FHA loans make it possible to put down as little as 3.5% and they also have competitive rates.

Lower Credit Score: People with credit scores as low as 580 can qualify for an FHA loan. FHA homebuyers with credit scores of 680 can often qualify for the same interest rates as conventional buyers with a score of 740.

Higher DTI Allowed: Lending institutions look at your debt-to-income ratio (DTI) so they will know and understand your financial obligations. This ratio will tell lenders if you can afford a mortgage. Conventional loans prefer your DTI to be 38% and lower. FHA loans can be approved with a DTI of 45%

No Income Limitations: One of the most common misconceptions of FHA loans is that only first-time homebuyers and buyers with limited income can qualify for them. This is not true. There is no maximum income limit that will prevent you from qualifying for an FHA loan. Contact one of our preferred local lenders.

The Cons Of An FHA Loan

Required MIP (Mortgage Insurance Premium) Payments: Since FHA loans require lower credit scores and smaller down payments, they require you to pay a MIP which shouldn’t be confused with Private Mortgage Insurance (PMI). If you put down under 10% as a down payment,  you will pay MIP for the life of the loan. If your down payment is greater than 10%, the MIP will fall off after 11 years.

Limitations on Property Condition: When using an FHA loan to purchase a home, that property has to meet certain requirements. A couple of these requirements are: no negative drainage, (water draining toward the house) and no chipped and peeling paint. The appraiser of the home must report the condition on the FHA’s appraisal form.

Seller Concerns: Sellers want to be assured that the buyer’s finances are secure. An FHA loan with 3.5-10.00% down does not show financial strength and many times may lose out to a conventional loan with a  20% down payment.

Do The Pros Outweigh The Cons?

To conclude, if the Pros outweigh the Cons, going with FHA financing may be the wisest choice for you. We have helped many buyers buy homes when using an FHA Loan. In fact, the majority of our real estate transaction include the buyer purchasing with an FHA loan. Get pre-approved and start shopping Casper‘s homes for sale with The Putzier Real Estate Team.

The Putzier Real Estate Team has 20 years of combined trusted real estate experience. Because the housing market is competitve, buyers and sellers are cautious in taking the next steps in real estate. The Putzier Real Estate Team provides the most up to date and leading edge market analysis so home buyers can make strategic decisions and achieve their real estate goals. Justin and Charlotte Putzier are Casper realtors committed to helping home buyers buy their Casper home. We equip home buyers to make educated real estate decisions: empowering them to achieve their real estate goals and dreams. Contact Justin and Charlotte Putzier at 307-259-8004 or 307-259-4440 today and say good bye to renting forever!