Are FHA Loans a Good Idea?
April 5, 2024
Is an FHA loan a good idea? Some finance-related websites say, “it depends,” noting that much depends on whether or not you are interested in avoiding mortgage insurance payments.
For example, one site says of FHA mortgages, “An FHA loan may make sense if you have credit scores that don't allow you to qualify for the most competitive rates and terms. And if you need to save money upfront, qualifying for a loan with a low down payment can help.”
And that is the key for some borrowers. The need to save more out of pocket is a powerful motivation to “go FHA” with a loan or refinance loan.
When Is an FHA Home Loan a Good Idea?
FHA mortgages are a good idea for borrowers who want to save money upfront on the mortgage and ideally have FICO scores of 580 or better.
Those with FICO scores below 580 should work on credit and other financials before applying for a loan to give themselves a better shot at a lower interest rate and better terms.
FHA loans allow you to finance upfront costs like the FHA mortgage insurance premium and you may be able to apply for an adjustable rate mortgage (an FHA ARM loan) to help save money in the earliest days of the loan.
Borrowers who choose an FHA ARM should do so with an exit plan for when the rate adjustment period begins.
Incomplete Information About FHA Loans?
It pays to shop around for an FHA lender, but when you are in the planning and research stages of your home loan, it pays to do as much comparison shopping for information about your loan as possible. Why? Not all finance articles are written by experts.
Some finance-related blogs and articles tell part of the story but neglect to provide the full details needed to make a truly informed decision. There are plenty of examples.
One finance blog, Intuit Credit Karma, notes, “Standard FHA loans require borrowers to have minimum credit scores of 500 or better (though some lenders have overlays requiring higher credit scores).”
This information is only half correct. FHA loan rules for single-family mortgages require a 580 FICO score or better to qualify for the lowest down payment of 3.5%. What does the article quoted above not mention?
Those who come to the FHA loan process with FICO scores between 500 and 579 must pay 10% down, not 3.5%. That makes getting an FHA mortgage harder if the borrower has cash issues requiring less money upfront. Knowing these issues in the planning and saving stages of your home loan is important for making the most informed choices you can in the process.
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RELATED VIDEOS:
Learn How to Meet FHA Requirements
Understanding APR
Your Proof of Ownership Is the Property Title
For example, one site says of FHA mortgages, “An FHA loan may make sense if you have credit scores that don't allow you to qualify for the most competitive rates and terms. And if you need to save money upfront, qualifying for a loan with a low down payment can help.”
And that is the key for some borrowers. The need to save more out of pocket is a powerful motivation to “go FHA” with a loan or refinance loan.
When Is an FHA Home Loan a Good Idea?
FHA mortgages are a good idea for borrowers who want to save money upfront on the mortgage and ideally have FICO scores of 580 or better.
Those with FICO scores below 580 should work on credit and other financials before applying for a loan to give themselves a better shot at a lower interest rate and better terms.
FHA loans allow you to finance upfront costs like the FHA mortgage insurance premium and you may be able to apply for an adjustable rate mortgage (an FHA ARM loan) to help save money in the earliest days of the loan.
Borrowers who choose an FHA ARM should do so with an exit plan for when the rate adjustment period begins.
Incomplete Information About FHA Loans?
It pays to shop around for an FHA lender, but when you are in the planning and research stages of your home loan, it pays to do as much comparison shopping for information about your loan as possible. Why? Not all finance articles are written by experts.
Some finance-related blogs and articles tell part of the story but neglect to provide the full details needed to make a truly informed decision. There are plenty of examples.
One finance blog, Intuit Credit Karma, notes, “Standard FHA loans require borrowers to have minimum credit scores of 500 or better (though some lenders have overlays requiring higher credit scores).”
This information is only half correct. FHA loan rules for single-family mortgages require a 580 FICO score or better to qualify for the lowest down payment of 3.5%. What does the article quoted above not mention?
Those who come to the FHA loan process with FICO scores between 500 and 579 must pay 10% down, not 3.5%. That makes getting an FHA mortgage harder if the borrower has cash issues requiring less money upfront. Knowing these issues in the planning and saving stages of your home loan is important for making the most informed choices you can in the process.
------------------------------
RELATED VIDEOS:
Learn How to Meet FHA Requirements
Understanding APR
Your Proof of Ownership Is the Property Title
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