This video goes over some of the pros and cons of getting an FHA loan. An FHA loan is one of the most popular loans home buyers get. FHA loans have a lot of advantages over a conventional loan. Their low down payment, lower interest rate, lower credit scores and higher debt to income ratio. The biggest negative is the mortgage insurance (MI) will never be removed as long as you have the loan, So if you plan on living in the home for many years and turn it into a rental property, an FHA loan might not be the best way to go. Of course, you want to sit down with a professional mortgage lender who has all your information.
Transcription
Hi everyone, your Tampa Bay real estate agent expert Lance Mohr and in this video, I want to go over the FHA Loan. What is the FHA Loan? What are the Pros and Cons?
So, FHA stands for Federal Housing Administration and they’re a department in HUD which is the Housing and Urban Development. Now what FHA does is they actually insure loans. So it’s the government ensuring the loan of default for the lender. FHA has a lot of advantages. The main advantage that people liked about FHA is their low down payment. It’s a formula but it’s approximately three and a half percent and like all loans they allow the seller to pay your closing costs. They will also allow your relative or a close family member to give a gift and pay your down payment as well. That’s a real advantage for a lot of people. Most people think FHA loan is just a first-time homebuyer loan, it isn’t. Not necessarily. The one thing is you can’t have an FHA loan and get another FHA loan at the same time.
Some other advantages of FHA are their interest rate is generally better than a conventional loan. Now, when I say conventional most people will think of Fannie Mae or Freddie Mac loans. They are also a little bit more flexible when it comes to the debt to income ratio. You can generally go a little higher on an FHA and they are a little bit more flexible with the credit scores. Your credit score could be a little lower on the FHA.
There’s a lot of advantages but probably the biggest disadvantage if there ever is any is the fact that you have to get mortgage insurance. It’s not private mortgage insurance like Fannie Mae and Freddie Mac with FHA it’s just called mortgage insurance but it’s not that you have to get it. It’s just the mortgages sure stays with you. The life of your FHA Loan. Let’s say you buy a home and you maybe you are a first-time homebuyer. You buy a home and the average price in your market is $200,000. You live in the home for six years and you’re ready to move out and you want to rent it. Well you are going to be paying that mortgage insurance, unlike the conventional loan. It’ not going to go away so generally speaking and the lender is going to know your situation. They will be able to give you some good advice if you could get a good honest lender is generally speaking most people don’t want to go on an FHA loan for the mortgage insurance reason unless you have to.
Most people opt to put if they can put 5% down or if they’re putting more down but there may be some reasons the FHA would be the best for you and again get a good loan officer. They will be able to tell you this. If you have any questions let me know. I’m not a lender, I was in lending for a number of years but I again I would say find a good loan officer, talk to them, take what’s called an application on you. Look at everything, pull your credit scores and give you the advice you need on which loan is best for you and then you can always ask them. If they say conventional say why if they say an FHA loan is better for you to say why. Challenge them a little bit. If you have any questions give me a call. If you like this video give me a thumbs up. Subscribe and I wish you the best of luck. Have a wonderful day.
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