FHA Loans are a Good Alternative
If you are having a difficult time qualifying for a standard mortgage, FHA loans are a good option. There are several advantages that an FHA loan has over regular loans, both to the borrower and the lender. There are also a few drawbacks, but in this market, just getting a loan can be enough to outweigh any of the drawbacks.
- You can typically qualify for a larger loan with a substantially lower down payment. You can put as little as 3% down and finance up to 97% of your home value.
- The requirements to qualify for an FHA loan are typically less stringent than traditional mortgages. As long as you have a stable job with stable income, you should have no problem finding a mortgage.
The advantages that the lender has are:
- Government insurance on the loans in case of default. They are backed up in case you default, so they can loan money with considerably less risk.
- The lenders can make more loans since they can lend more money to a larger pool of borrowers. Also, since they are lending at 97% of the value, their mortgages are larger than if they were only lending 20% of the value
There are a few drawbacks to getting an FHA loan:
- You have to pay the government insurance premium. This is usually only a half percent of the mortgage, so it really isn’t going to be a deal breaker, especially if you can’t get a mortgage anywhere else.
- There are limits on how much you can borrow. You can’t get 97% financing on a million dollar mansion with an FHA loan.
- You have to occupy the property for at least one year. You can’t get an FHA loan for an investment property that you plan on renting out. This won’t be an issue for the average person looking for a new home.
Overall, the FHA market is booming in recent years with the whole financial and lending crisis. Talk to your lender to get all the details on the FHA loans and regulations in your area.