For first time home buyers, finding the right loan to finance your purchase is a challenge. You can choose a traditional mortgage but many first time buyers prefer to use an FHA loan. These loans make buying a house easier when your finances aren’t as stable as other buyers. Before you make your decision, you need to consider the pros and cons of FHA loans.
FHA loans offer many benefits to first time home buyers that otherwise might not be able to qualify for financing in the first place. These are just a few of them.
They Require Lower Down Payments
FHA loans allow you to make a smaller down payment on the home you’re buying. When you choose other types of loans, you’ll typically need to have 20 percent of the home’s sale price saved as a down payment. With an FHA loan, you’re able to put as little as 3.5 percent of the sale price down on the home. That frees up more of your savings to help cover things like improvements, moving expenses, and new furniture.
They’re Easier to Qualify For
FHA loans exist to help borrowers with less-than-perfect finances qualify for loans. Typically, you’ll be able to qualify as long as you have a credit score over 620 and have a maximum debt-to-income ratio of 41 percent.
Though FHA loans offer compelling benefits, they’re not without their downsides. These are the most common issues first time home buyers face when considering these loans.
They’re Often Issued in Smaller Amounts
FHA loans are meant to get you into an affordable house. This means you may not qualify for enough money to buy the home of your dreams. Think about the types of homes you’re considering and their costs before you apply. A conventional mortgage may give you more flexibility to get a more expensive house.
You Will Have to Pay Mortgage Insurance
Since you’re not putting down the full 20 percent down payment, you’ll need to pay mortgage insurance over the life of the loan. This requirement doesn’t go away once you repay 20 percent of the home’s sale price. Instead, you’re stuck making that extra payment until the loan is repaid in full.
Explore Your Options
If you’re ready to buy a house but aren’t sure where to start, reach out to our team. At Mortgage Solutions Financial, we specialize in helping first time home buyers get into a new home quickly and easily.