FHA loans are a popular type of mortgage for homeowners that either don’t have the capital for a large down payment, have a bankruptcy in their past, or can’t get a mortgage otherwise. Because of the downturn of the housing market in 2008, the mortgage insurance premiums (required by any FHA loan) have almost tripled in expense, which means FHA loans aren’t as great a deal as they used to be. If you are trying to decide whether or not to take an FHA loan, here are a few things to consider.
Expenses and Fees
One of the biggest things you need to consider before deciding on an FHA loan is the expense and fees that come with an FHA loan. Because FHA loans offer such a low down-payment, they come with the requirement that you take out two mortgage insurance premiums, one upfront and one that lasts throughout the entirety of your loan. These typically add a lot to a monthly amount. Though a low down-payment is appealing, it also adds quite a bit of interest over the years than if you had paid the traditional 10 to 20% of the mortgage. So, if you have another loan option, you should definitely take that over the FHA, just to save money in the long run.
Another problem with FHA loans, because they are known for helping families of more modest means, is that they have a limit to how much you can borrow. The FHA recalculates the loan limits (the “floor” and the “ceiling”) each year based on 115% of the median house price in each area. This means that if you live in an expensive area, like New York City or San Francisco, your loan limits will be a lot different than if you live in Kansas City or Las Vegas. This can be a problem if you need a higher loan amount.
If you are considering an FHA loan, these are just a few things that you’ll want to determine before you decide to go with the loan. Because there are a few things that may add a hiccup to your plan, you’ll want to go over all of your options, especially if you have a loan offer from the private mortgage industry. If you are looking to talk about FHA loans, or commission advances in California, be sure to contact Express Cash Flow for more information.