FHA Loan Guide Helps Borrowers Decide if an FHA Mortgage is the Right Choice

A new guide from LoanLove.com takes a look at FHA loans and explains some of the pros and cons of this particular loan options.

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San Diego, CA (PRWEB) March 28, 2014

For many people in the United States an FHA loan is the ticket to home ownership. A new guide from LoanLove.com takes a look at these loans and helps borrowers to better understand the advantages and drawbacks of choosing this loan option. LoanLove.com is a borrower advice website that provides detailed insights into the mortgage industry in a fun and entertaining way. The team at LoanLove.com is devoted to help empower both first time and experienced homeowners with valuable resources, first-class knowledge and connections to top-rated industry professionals and has the mission of helping consumers and borrowers to obtain the latest information on mortgage lending news, the real estate market and the U.S. financial landscape in order to help them obtain a home loan that they will love. This new FHA loan guide continues to help attain that goal.

Loan Love’s guide to FHA loans starts by saying, “So, you say you want to buy a home but you can only afford a small down payment? If you have good credit (not necessarily perfect), an FHA mortgage could be your ticket to home ownership. An FHA mortgage is a mortgage that’s been guaranteed (i.e., insured) by the Federal Housing Administration. The actual loan is made by a bank or other traditional mortgage lender, but FHA underwriting means the lender won’t be left on the hook if the borrower defaults. It’s easy to see, then, why FHA loans are popular with lenders – there’s a lot less risk. But why are they popular with homeowners?”

As noted in the above quote, Loan Love explains that the primary advantage of FHA mortgages is that they do not require a large down payment. With FHA backing, lenders are willing to assume a larger mortgage amount, meaning that the borrower might only need to have a down payment of as little as 3.5%. In addition, some FHA loans are assumable, meaning that down the road, if the borrower decides to sell the house, the buyer might be able to take over the mortgage without having to qualify for a different loan product – this can be a real advantage when looking for a willing buyer. Lastly, Loan Love explains that if the borrower decides to take out an FHA 203k loan, it will allow them to both purchase the home and have money for home improvements, saving the hassle of applying for additional loans for renovations.

While these are some very attractive advantages, especially for first time home buyers or those with smaller incomes, there are also a few disadvantages of FHA loans. Loan Love’s lists some of these in the guide, saying,

  •     “FHA loans usually are not available for very expensive properties and the amount you’re able to borrow will depend on whether the FHA considers the area to be a “high cost” or “low cost” neighborhood. Other loan products are usually more flexible in the amounts you can borrow.
  •     You’ll need to pay a mortgage insurance premium at closing (currently 1%) and an additional mortgage insurance fee with the first 60 monthly payments (right now, 0.85%-0.90% annually); these fees help mitigate potential losses the FHA might face when borrowers default.
  •     Interest rates may be higher than standard loans, especially for buyers with top-notch credit.”

Lastly, the article says, “Like any other loan product, you need to do your homework: While an FHA mortgage might be the ideal solution for some homebuyers, if you have good credit and a decent down payment, you might do better to look for other loan products which may offer lower interest rates or may not require mortgage insurance.”

For more information on these types of loans, click here to see the full guide at LoanLove.com.


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