If you’re looking for your first home, you may feel a little overwhelmed with the process. You have to get preapproved, save for a down payment, find the right home for you and your family, and consider your future all at once.
However, one of the most important decisions you need to make is what kind of home loan you’re going to apply for. First, let’s talk about FHA loan pros and cons, as it is one of the most common types of home loans. Then, we’ll discuss alternative options.
FHA Loan Pros and Cons
FHA loans are some of the most commonly used loans in the real estate industry for several good reasons. However, that doesn’t mean they’re the right choice for everyone.
FHA loans are great for first-time homebuyers and for those with limited finances and/or less than ideal credit. Here are some of the major perks:
- Borrowers can obtain a loan with as little as 3.5 percent down
- FHA loans are more forgiving with the borrower’s credit score
- FHA loans are assumable (someone can take over the loan)
- FHA loans allow extra finances for things like home improvements
- FHA loans are easier to refinance than other home loans
- FHA loans allow the seller to contribute up to six percent of closing costs (rather than three)
- FHA loans can be obtained one to two years after filing bankruptcy (depending on the circumstances)
As stated above, FHA loans aren’t perfect for every homebuyer. In fact, there may be many reasons why a buyer should choose an alternative option. For example:
- FHA loans require FHA mortgage insurance
- FHA loans have limits, regardless of your credit
- FHA loans have more stringent guidelines for house inspections that must be met before the buyer can be financed
- FHA loans must be used to buy a primary dwelling (no secondary homes for investing, vacationing, etc.)
- Home sellers may look negatively at buyers with FHA loans (they might see you as less financially secure and pass on your offer for someone not using an FHA loan)
If the FHA loan pros and cons didn’t paint a clear enough picture for you, perhaps you should look at some of your other options. However, the type of loan you can obtain can rely heavily on your unique situation. Here are some common alternatives to the FHA loan and their criteria.
VA loans are available to veterans who have served six years in the Reserves, six months of active duty during times of peace, or three months of active duty during times of war. These loans can be acquired with very low-interest rates and zero money down. However, they also have strict guidelines concerning what the home is used for and the home inspection results.
Fixed-rate loans can be acquired for 15 or 30 years. They offer a stable interest rate and monthly payment. However, the stability of these loans is made available due to a higher down payment (typically 20 percent or more).
Finally, there are adjustable-rate mortgages that offer low interest for the first five or 10 years of the loan. After this, the interest rates will vary based on the housing market and corresponding interest rates.
Are You Looking For Creative Financing Solutions?
Have you made a decision about FHA loan pros and cons? If FHA loans don’t quite offer what you’re looking for, we might be able to help. We offer alternatives to conventional loans for real estate opportunities of all kinds.
Contact us today to get a free quote and see what we can do for you.