Buy a Home on a "Taco Bell" Budget
FHA mortgages are an excellent alternative to conventional loans because they are designed to accommodate low money down options with lower credit scores. Another great advantage is, in some cases, they can handle a somewhat higher debt ratio which allows you to buy more house. Here are some of the advantages and disadvantages of FHA loans.
- An FHA mortgage only requires a 3.5% down payment.
- The maximum debt ratio with an FHA loan is 55% compared to a conventional loan that is 49% or lower.
- Sometimes an FHA loan will yield a lower monthly payment than the conventional loan. This is due to high or low credit scores. With FHA, if your score is 660, you get the same rate as the borrower with the 780 middle credit score. We will do the math and always look at the conventional loans as well.
- Mortgage insurance needs to be refinanced off the loan unlike a conventional loan that allows the PMI to be removed when the mortgage balance reaches 78% of the value of the home.
- Many Realtor listing agents do not like FHA offers because they feel the the borrower might be a shaky or the appraisal might be more scrutinized because it’s FHA. We don’t agree with either one of these ideas.
- FHA requires monthly mortgage insurance as well as an increase to the total amount financed in the amount of 1.75% to the base loan amount so you finance 1.75% more of a loan amount compared to conventional.