An FHA home loan is a mortgage that’s been insured by the Federal Housing Administration. Simply speaking, this implies that if a debtor with an FHA loan defaults, the creditor understands that FHA will cover the loss. FHA has been helping ordinary Americans secure houses loans since 1934 and is now a favorite way for home buyers to borrow money. However, FHA isn't for everyone. There are a couple hoops that some people are simply not capable or willing to jump through to take out an FHA mortgage loan.
Financing Limitations
There are limits set by how much you can borrow using an FHA loan. Not only do these limits vary from state to state, but also from city to city. In Kansas City, Missouri, for instance, the many you can borrow for a single family home is $271,050, although the limitation for San Francisco as of 2010 is $729,750. That may be less than you have the ability to borrow using a conventional loan.
A Seller's Market
Even though most areas of the country have seen a recent dip in home sales, there are occasions when it becomes a vendor 's market and numerous supplies are made on a property. Because an FHA loan has stricter requirements for the vendor, for example multiple home inspections, some sellers and their real estate representatives view FHA loans has a hassle they would rather avoid.
Personal Mortgage Insurance
One of the primary reasons many home buyers opt for a FHA loan is because FHA requires a lower down payment than most other mortgage loans. Usually, private mortgage insurance is required on any mortgage with a down payment of less than 20 percent, tacking this monthly fee on your monthly payment.
Another Fee
FHA also charges an upfront insurance fee which equals approximately 1.5 percent of your mortgage amount. This isn’t a fee that’s found on a mortgage.
Paperwork
FHA loans are famously paperwork intensive. Some mortgage agents will ask for unreasonable fees to finish the paperwork, so make sure that you shop around and find a respectable agent. You ought not have to pay over 1.5 points to your FHA paperwork to be completed.
Property Restriction
Because the government is insuring the loan, they would like to make confident that the property you buy is in great form. FHA loans place more limitations on the condition of the property and where it's located than other kinds of mortgage loans. This may be particularly tricky if the home you're trying to buy has been repossessed and is now owned by the lender.
Odd Twist
FHA loans allow legally married people to buy houses by themselves, but nevertheless require that their spouse's debt and credit be taken into consideration. Conventional lenders who allow spouses to buy individually don't even believe the financial situation of their non-borrowing spouse.