Is An FHA Loan Right For You?

FHA loans can be appealing, but beware of these potential pitfalls that can cost you over time.

Federal Housing Established loans or FHA loans, are mortgages with relaxed restrictions, they sometimes offer borrowers a better deal compared to conventional loans, but before deciding it's important for you to know the pros and cons, to understand how this type of loan works.

Here are 4 things to look at..

1) Advantages Of FHA Loans:

FHA loans make homeownership more accessible because you can qualify for a down payment of just 3.5%, even with a low credit score. You can also use money that was gifted to you for the down payment. This is a great way for young and first-time homeowners who have struggled to try and get the 2% down payment all at once or for those who have had credit problems in the past.

2) Understanding How FHA Loans Work:

FHA loans can get costly due to the borrower needing to pay a premium which is insured by the Federal Housing Administration, which means if you default on your payment the FHA promises to pay back the bank that made the loan so the lenders take no risk. That's why FHA loans have more relaxed restrictions than conventional lenders do.

3) Potential Pitfalls:

Understanding the downside to FHA loans is very important. For example, the fees can cost you with an FHA loan which come from the underlying insurance fees. The current fee costs you 1.75% with an ongoing fee of 0.85%. So because of that permanent insurance payment, it makes FHA loans far less attractive to the buyer.

4) Is An FHA Loan Right For You:

Anyone with a credit score of less than 600 would be better served with an FHA loan due to the fact that most conventional lenders are looking for scores above 700 to even consider you. Also. those in the buyers market can benefit as well because it allows you to pay up to 6% of closing costs compared to the 3% other lenders allow, and to anyone who a down payment of less than 5%, regardless of your credit history. Do keep in mind the pitfalls though with having to maintain the insurance fees for many years that could end-up costing you a lot in the end.

So if your looking into FHA loans these tips might help with understanding what your pros and cons are..

If your looking to purchase or sell a home, come to New Mexico Mountain Properties and see our vast selection of homes for sale in Angel Fire as well as our Taos homes for sale. If it's land you are looking for, our mountain view land for sale in Angel Fire and Taos might just spark your interest. Take a look at our condos for sale in the Taos Ski Valley and Angel Fire Resort, some just steps to the slopes. Give us a call at 575-377-2626 in Angel Fire, 575-758-5852 in Taos or 575-770-3306 and speak directly to a broker. Our dedicated and energetic staff is here to serve and welcome you to our beautiful area.